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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Royal Mail Plc | LSE:RMG | London | Ordinary Share | GB00BDVZYZ77 | Royal Mail Plc |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 207.00 | 206.00 | 206.30 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMRMG
RNS Number : 8543N
Royal Mail PLC
21 May 2015
Royal Mail plc
Financial report for the full year ended 29 March 2015
Thursday 21 May 2015
Highlights
Royal Mail plc (RMG.L) today announced its results for the full year ended 29 March 2015.
"We have delivered operating profits in line with our expectations. Our continued focus on efficiency resulted in a better than expected UK cost performance, offsetting lower than anticipated UK parcel revenue. At the same time we have delivered a large number of innovations at pace as we transform our business.
"Our trading environment remains challenging, but we are now poised to step up the pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs.
"At this early stage of the financial year trading is in line with our expectations, but as in previous years our performance will be weighted to the second half and will be dependent on our important Christmas period.
"We remain committed to delivering value for our shareholders and the Board is recommending an increase in the full year dividend of five per cent."
Moya Greene, Chief Executive Officer, Royal Mail plc
Group financial highlights
Hot Features
Premium
52 weeks 52 weeks Underlying
2015 2014 change(1)
=============================================== ========= ========= ===========
Adjusted results (including discontinued
operations)(2)
=============================================== ========= ========= ===========
Revenue (GBPm) 9,424 9,456 1%
Operating profit before transformation costs
(GBPm) 740 729 6%
Operating profit margin before transformation
costs (%) 7.9 7.7 40 bps
Operating profit after transformation costs
(GBPm) 595 488 5%
Operating profit margin after transformation
costs (%) 6.3 5.2 20 bps
Profit before taxation (GBPm) 569 421
Earnings per share (pence) 42.8 30.8
Reported results (continuing operations) Change
=============================================== ========= ========= ===========
Revenue (GBPm) 9,328 9,357
Operating profit before transformation costs
(GBPm) 611 669
Operating profit after transformation costs
(GBPm) 466 428
Profit before taxation (GBPm) 400 1,664
Earnings per share (pence) 32.5 127.5
Free cash flow (GBPm)(3) 453 398
Net debt (GBPm) (275) (555)
Full year proposed dividend per share (pence) 21.0 20.0(4) 5%
=============================================== ========= ========= ===========
Business units
Operating profit
before
Adjusted results (including transformation
discontinued operations)(2) Revenue costs
============================== ================================== =====================
52 weeks 52 weeks Underlying 52 weeks 52 weeks
(GBPm) 2015 2014 change(1) 2015 2014
============================== ========= ========== =========== ========= ==========
UKPIL 7,757 7,787 Flat 615 608
GLS 1,653 1,651 7% 115 108
Other businesses 14 18 n/m 10 13
============================== ========= ========== =========== ========= ==========
Group 9,424 9,456 1% 740 729
============================== ========= ========== =========== ========= ==========
Group financial performance
-- Revenue increased by one per cent. This was due to parcel revenue growth in UKPIL and revenue growth in GLS which was ahead of our expectations.
-- In UKPIL, operating costs before transformation costs were down one per cent, better than expected. People costs increased by one per cent and non-people costs reduced by four per cent.
-- Tight cost control drove operating profit margin before transformation costs improvement of 40 basis points.
-- Free cash inflow increased to GBP453 million, benefiting from GBP100 million of net cash flows from the London property portfolio.
-- As expected, cumulative net investment for 2013-14 and 2014-15 was GBP1.2 billion. Total investment increased from GBP617 million to GBP658 million.
-- Net debt reduced from GBP555 million to GBP275 million, mainly due to cash flow generated, offset by dividend payments of GBP200 million.
-- Adjusted earnings per share was 42.8 pence.
-- The Board is recommending a final dividend of 14.3 pence per ordinary share. Including the interim dividend of 6.7 pence per ordinary share, this represents a total dividend of 21.0 pence per share for 2014-15, up five per cent over the notional 2013-14 full year dividend of 20.0 pence.
Operating performance
-- UKPIL revenue was flat at GBP7,757 million. A one per cent decline in total letter revenue was offset by parcel revenue growth of one per cent, reflecting the competitive market.
-- UKPIL parcel volumes increased by three per cent, with a better performance in the second half. Addressed letter volumes declined by four per cent, at the better end of our forecast range.
-- GLS revenue grew to GBP1,653 million, up seven per cent, with revenue growth in all its markets. Volumes were up eight per cent.
-- Collections, processing and delivery productivity in UKPIL improved by 2.5 per cent, within our target range of a 2-3 per cent improvement per annum.
-- We have seen a net reduction in the number of employees of over 5,500 this year in UKPIL.
-- The management reorganisation programme delivered cost benefits of GBP42 million. It is now expected to deliver cost savings of around GBP80 million per annum from 2015-16.
-- We have introduced around 30 new projects, including new services, products and promotions to improve our customer offering.
-- We exceeded our regulatory Quality of Service target for Second Class mail, with a performance of 98.9 per cent against a target of 98.5 per cent. We met our regulatory target for the delivery of First Class mail, with a performance of 93.0 per cent.
Outlook
-- The parcels and letters markets in the UK remain highly competitive. -- Trading is in line with our expectations at this early stage of the financial year.
-- Our performance will be weighted to the second half and will be dependent on our important Christmas period.
-- We continue to target flat or better UKPIL underlying costs for 2015-16.
-- The combined impact of German minimum wage legislation and the disposal of DPD SL could reduce GLS margins by around 50-100 basis points in 2015-16.
-- We remain committed to growing dividends.
(1) All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for movements in foreign exchange in GLS, working days in UKPIL and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days in UKPIL and exclude elections in letter volumes
(2) Adjusted results exclude specific items, including the difference between the income statement pension charge and the total cash cost of pensions, including deficit payments. The figures include the results of DPD Systemlogistik, a subsidiary of GLS Germany, which was owned by the Group for the full reporting period, and sold following the year end and has been reclassified as discontinued operations
(3) For more information on free cash flow, see note 7
(4) Notional 2013-14 full year dividend
Chief Executive Officer's review
This has been a challenging year. Through a continued focus on efficiency and tight cost control, we have offset the impact of lower than anticipated UK parcel revenue this year, so that operating profit before transformation costs is in line with our expectations. It has also been a year of innovation, with a range of new initiatives delivered at pace. We have introduced around 30 new projects, including services, products and promotions, to improve our customer offering.
Group revenue increased by one per cent. UKPIL revenue of GBP7,757 million was flat, as a one per cent decline in letter revenue was offset by a one per cent increase in parcel revenue. GLS delivered good revenue growth of seven per cent, with revenue increases in all of its markets.
Adjusted Group operating profit before transformation costs increased to GBP740 million, a 40 basis point expansion in the margin on an underlying basis. Short term cost actions have delivered a better than expected UK cost performance. Adjusted UKPIL costs were down one per cent on an underlying basis.
This table is a snapshot of our transformation programme, which began in 2007-08. It sets out some of the key metrics through which we measure our progress.
2007-08 2014-15
============================= ======== ========
Mail Centres 69 39
============================= ======== ========
Delivery Offices
that have undergone
modernisation - 1,333
============================= ======== ========
Letters sequenced
to delivery point 1% 82%
============================= ======== ========
Headcount in Operations 158,900 130,100
============================= ======== ========
2008-09 2014-15
============================= ======== ========
Collections, processing
and delivery productivity
improvement (year-on-year)
(%) (1.1) 2.5
============================= ======== ========
2009-10 2014-15
============================= ======== ========
Lost Time Accidents
per 100,000 hours
in Operations 2.36 0.67
============================= ======== ========
Net cumulative investment for 2013-14 and 2014-15 was GBP1.2 billion, as we expected. This year, we saw a net reduction in the number of our UKPIL employees of over 5,500. I am grateful to them for their contribution. We have worked very closely with our unions to make these very difficult changes.
Outlook
The parcels and letters markets in the UK remain highly competitive. We continue to estimate that volume growth in the addressable parcels market(1) will be reduced to around 1-2 per cent per annum in the short term(2) . However, this will be dependent on the speed and extent of rollout of Amazon's own delivery network. We continue to expect that UK addressed letter market volumes, excluding elections, will decline by 4-6 per cent per annum in the medium term. We note the recent statement by PostNL about its UK end-to-end delivery activities and await the outcome of its review.
GLS has performed well in 2014-15 but the combined impact of German minimum wage legislation and the disposal of its subsidiary, DPD Systemlogistik, could reduce GLS margins by around 50-100 basis points in 2015-16. However, we are at the early stages of implementing mitigation strategies and need to see how the market reacts.
The investments made over the past three years in our technology, our network and our people position us well to address the challenges we see. We are now poised to step up the pace of change to drive efficiency, growth and innovation. We are maintaining a tight focus on costs and continue to target flat or better UKPIL underlying costs for 2015-16. We continue to expect ongoing transformation costs of around GBP120-140 million per annum depending on the level of voluntary redundancies announced in-year. Reported profit numbers will be impacted by the difference between the income statement pension charge and the cash cost of pensions which is expected to increase to around GBP255 million in 2015-16.
Total cash investment, net of operating asset disposals, is expected to be in the range GBP550-600 million going forward. We continue to evaluate our options in relation to our larger London properties. These larger sites will require further investment in order to optimise value, which will be mainly met by the disposal proceeds from the Paddington site.
At this early stage of the financial year trading is in line with our expectations but as in previous years our performance will be weighted to the second half and will be dependent on our important Christmas period.
We remain committed to growing our dividend. The Board is recommending a final dividend of 14.3 pence per ordinary share giving a total dividend for the full year of 21.0 pence per share, up five per cent over the notional 2013-14 full year dividend of 20.0 pence per share.
Our strategy
Our strategic priorities are:
i) Being a successful parcelsbusiness;
ii) Managing the decline in letters; and
iii) Being customerfocused.
These priorities are underpinned by a range of people, customer and financial measures to ensure we are managing our business successfully.
We are the pre-eminent delivery company in the UK. Through GLS, we operate one of the largest, ground-based, deferred(3) delivery networks in Europe. We are investing in change to drive further efficiency improvements, generate growth in new areas and extend the reach of our core offering.
Parcels
We continue to estimate that the total volume of parcel deliveries in the UK - across business-to-consumer (B2C), consumer-to-any-recipient (C2X) and business-to-business (B2B) - will grow at approximately four per cent per annum in the medium term(4) . However, we estimate that the impact of Amazon delivering an increasing number of parcels using its own delivery network will reduce the annual rate of growth in our addressable market to around 1-2 per cent in the short term. Overcapacity has combined with the reduced rate of growth in the addressable market to create pricing pressure in all segments.
More than 90 per cent of the parcels we handle in the UK pass through the Royal Mail core network, which delivers the Universal Service. Heavier, bulkier items tend to be carried by Parcelforce Worldwide. Primarily through these two nationwide networks, we offer a range of services, including Universal Service Obligation (USO) letter and parcel delivery, express and courier services.
We benefit from a broad customer base. Nearly three quarters of our domestic parcel revenue is generated by consumers, micro-SMEs and SMEs. This reduces our exposure to the actions of larger customers.
Our parcels strategy: key points
- Maintaining our pre-eminent position, while seeking new areas of growth. Pursuing faster growing parts of the UK market and growing international markets
- Adding value by continually improving our products and services. Ensuring customers of all sizes can connect with our systems quickly and easily; significantly increasing the number of parcels we barcode and scan; launching Parcelforce Select
- Expanding and automating our networks. We will begin rolling out automated parcel sorting to around 20 of our busiest Mail Centres; continuing to expand our European network through organic growth and selective, strategic acquisitions
Maintaining our pre-eminent position
In the medium term, we expect the fastest areas of growth in UK parcels will be clothing and footwear, and toys and sports equipment. We are building our presence from a modest base. We have won new contracts with a number of high street and e-retailers. We will seek to secure further volumes by being more flexible about the size and shape of parcels we will deliver.
We now offer large business customers later weekday, and extended weekend, access to the Royal Mail core network. Twelve months ago, it was open to these customers five and a half days a week. Today, we are open seven days a week and later into the evening. As a result, we have attracted more traffic.
Our performance at Christmas is key to our service proposition. In December 2014, we delivered one of our highest ever quality of service performances for parcel delivery. By Christmas 2015, we are aiming to barcode significantly more parcels and scan them in the Mail Centre and on the doorstep.
In March 2015, we launched a shop front on Alibaba's Tmall Global e-marketplace. This platform will offer over 300 million Chinese consumers the opportunity to buy distinctive British products, using Parcelforce Worldwide to ship the products to China.
Adding value by continually improving our products and services
In November 2014, we announced that Amazon would offer its online customers access to our Local Collect click-and-collect network. Amazon customers can choose the most convenient of around 10,500 Post Offices for their parcel delivery. This is supported by the extension of opening hours across 3,000 branches - an additional 85,000 hours per week - and the opening of around 2,000 branches on Sundays. Local Collect traffic with Amazon is growing.
In January 2015, Parcelforce Worldwide launched a new interactive service, Parcelforce Select, to improve the end-customer's control of their parcel delivery. Unlike other carriers, the pre-delivery notification is triggered by the delivery driver. This ensures that the actual delivery is based on local driver experience, rather than a centrally-generated time window. We have won new business as a result of this initiative. Customer feedback has been very positive.
We are extending the support we offer to key customers. We offer eBay buyers the opportunity to track returned items back to the seller. Our new Click & Drop tool enables eBay sellers to integrate their accounts and buy and print postage labels without manually inputting the address of each individual buyer, providing a simple, three-step journey from purchase to print. In February 2015, we announced the acquisition of StoreFeeder, an IT software company. We plan to use its expertise to develop more tools to enable customers of all sizes to connect and ship parcels easily.
In March 2015, we launched a new portal to help online retailers better manage returns. 72 per cent of online shoppers said they would be unlikely to shop with a retailer if they had a difficult returns experience(5) . The returns portal gives retailers full visibility of returned items - exactly which items are being returned, from which customer and for what reason, improving stock management. A number of our retailer customers are already using the service.
Our core proposition is to provide high quality, value-for-money products for our core customer base, and to win new business in the process. When we announced our consumer tariffs for 2015-16, the average price rise across domestic parcels, USO letters and international letters and parcels was the lowest for at least five years. We have simplified our parcel specifications and cut the price of our medium-sized Second Class parcels. We have embedded our price promotion for small parcels into our 2014-15 price changes.
To enable us to track significantly more parcels, we are working with our customers to put information-rich, 2D barcodes on as many of our parcels as possible. Our largest customers are already beginning to make the switch. From summer 2015, we will begin a process to deliver the technology we need to scan significantly more parcels at the Mail Centre and on the doorstep. Over time, this will give us greater visibility of traffic in our network, which will allow us to tackle any quality of service issues in real time. Tracking will drive the uptake of higher value services.
Expanding and automating our networks
We will begin rolling out automated parcel sortation at around 20 of our busiest Mail Centres across the UK. Parcels sortation will help us to improve our efficiency.
Our European parcels carrier, GLS, delivered revenue growth in all of its markets. It continues to perform well, despite a weak economic backdrop in the Eurozone. We have delivered growth in international and domestic parcels.
We have already seen some impact in Germany, GLS' biggest market by revenue, from minimum wage legislation, introduced on 1 January 2015. We are introducing operational and commercial responses to help mitigate the impact of this change. In France, our recovery plan is ahead of schedule for the year. We are growing our business with existing customers and continue to target new customers. GLS Italy continues to deliver strong revenue growth.
Consumers in Luxembourg became the latest to benefit from GLS' FlexDeliveryService, which launched in the country in April 2015. Already available in 12 other European countries, FlexDeliveryService notifies parcel recipients via email or text when a package is on the way to them, and enables them to change the delivery time to suit them. Saturday and evening delivery options are now available in eight cities in Germany, meaning consumers can choose to receive parcels between 5pm and 8pm on weekdays or 8am and 1pm on Saturdays.
Letters
Our letters strategy: key points
- Managing the structural decline in addressed letter volumes by promoting the value of mail
- Securing the promise of commercial freedom in a regulatory model that effectively supports the future sustainability of the Universal Service in the UK
- Optimising mail handling to accommodate a changing letters mix and increase efficiency
Addressed letter volumes decreased by four per cent - at the better end of our forecast range. Marketing mail revenue increased by five per cent to GBP1,167 million. In January 2015, MarketReach launched a campaign demonstrating the value of marketing mail as part of an integrated advertising campaign. Using five of the UK's top advertising executives and research conducted over an 18 month period, the Mailmen campaign looks at the true value of mail. It found that people value something they can see and touch 24 per cent more than things they can only see. More than half (57 per cent) say that receiving a communication by mail makes them feel more valued.
The rollout of Mailmark(R), which provides barcode technology and online-reporting for machine-readable business, advertising and publishing mail, is progressing. Over 17 per cent of machine-readable mail currently carries the Mailmark(R) barcode. Existing customers, including home-shopping, energy providers and high street retailers, benefit from price incentives and more accurate mailing data.
In August 2014, we started the process of moving low-volume postboxes to collection on delivery. Declining letter volumes have been reflected in a fall in the number of items posted in postboxes. Rather than decommission uneconomic postboxes, postmen or women will empty the box on their round, instead of providing a dedicated collection by van. Once our new collection on delivery approach is fully rolled out, we expect it to reduce our mileage by 14.2 million miles per annum, with an associated saving of over 2.1 million litres of diesel. As part of this programme, we have sought to improve the level of public access to postboxes in areas of under-provision, with the addition of around 2,000 new postboxes by March 2016.
In February 2015, we announced price increases of one penny for First Class and Second Class consumer stamps. We thought very carefully about the impact of these price increases on our customers. A one penny increase is the smallest possible price rise that we could implement. Across all letter products, average price increases were broadly in line with RPI.
Regulation
We welcome the competition that is an integral part of operating in a fully-liberalised postal market. The ongoing decline in letter volumes means that the incentives on Royal Mail to reduce costs are already strong. The intensely competitive parcels market adds to these efficiency drivers. The sustainability of the Universal Service depends on Royal Mail being able to use revenue from easy-to-serve urban areas to cover the cost of a nationwide network capable of serving all addresses at a uniform price. In June 2014, Royal Mail made a detailed regulatory submission to Ofcom highlighting the risk that direct delivery poses to the financial sustainability of the USO.
Customers
Our customer strategy: key points
- Providing a consistently high quality service through the consistent execution of standards such as Delivery to Neighbour
- Being as flexible as we can to provide the services our customers want
- Driving down customer complaints through the rollout of best practice, such as Nominate a Neighbour, which aims to improve rates of first time delivery
Our brand is a key element of our customer proposition. In February 2015, Royal Mail was ranked as one of the top 15 Business Superbrands in the UK(6) . Our own research indicates that our mean business customer satisfaction score - across large and medium sized businesses, SMEs and micro-SMEs - is 76. This is an increase on 75 last year, 74 in 2012-13 and 70 in 2011-12.
In September 2014, Royal Mail Group achieved the top ranking in both the Dow Jones Sustainability World Index and Dow Jones Sustainability Europe Index for the Transportation and Transportation Infrastructure Industry.
Royal Mail is the only postal operator that is required to meet regulatory Quality of Service targets for First Class and Second Class mail, and to publish those targets. These regulatory targets are amongst the highest of any major European country.
I am delighted to report that we have again exceeded our regulatory Quality of Service targets for Second Class mail in 2014-15. 98.9 per cent of Second Class mail (target: 98.5 per cent) arrived within three days of posting. We met our regulatory target for First Class mail, delivering 93.0 per cent of First Class mail on the following day(7) . This compares with First Class performance of 93.2 per cent and a Second Class performance of 98.9 per cent in 2013-14.
Delivery to Neighbour is a Royal Mail standard. From March 2015, customers visiting an Enquiry Office to pick up a parcel have been able to 'Nominate a Neighbour' as their first delivery choice if they are not at home.
We have maintained our internal performance against our composite parcels measure, an internal measure for all retail parcel products in the Royal Mail core network. This year, we delivered a performance of 95.0 per cent, compared with 95.1 per cent in 2013-14 (target: 95.3 per cent).
Innovation
Over the past year, we have launched or piloted a large range of new services designed to provide a greater choice of parcel delivery options. Local Collect - the largest single click-and-collect network, available through Post Office - and Sunday opening at our busiest Delivery Offices are two such services to help online shoppers not at home during the day to receive their parcels.
Investments in new technologies are an important part of our strategy to offer an ever-improving quality of service. We aim to transform our parcels offering by providing tracking as standard for as many parcels as we can.
New or emerging technologies offer the potential to transform the way we will work in the future. We continue to monitor and, where appropriate, test and pilot how these can improve our business and benefit customers. For example, through Parcelforce Select, we are improving the control our customers have over their parcel delivery. We also engage with partners to explore how emerging areas, such as wearable technologies, may be deployed in the future.
Transformation and cost control
Combined with the disciplines of being a public company, the competitive nature of our core markets means that we face strong efficiency incentives. We are driving a 'cost-conscious' culture through a combination of cost actions, optimising our networks and standardising our processes.
We have continued to deliver productivity improvements across collections, processing and delivery. Productivity improved by 2.5 per cent in 2014-15, within our target of a 2-3 per cent improvement per annum. This compares with an improvement of 1.7 per cent in 2013-14 and 2012-13.
The management reorganisation programme, announced in March 2014, is now expected to deliver cost savings of around GBP80 million per annum from 2015-16 - more than the GBP50 million annual savings we originally anticipated.
We have agreed a streamlined revisions process across some of our Delivery Offices that have been impacted by direct delivery and overcapacity in UK parcels. As part of a joint agreement with the Communication Workers' Union (CWU), Delivery Offices that have seen a significant change in their workload are also taking steps to structure their units to manage this volatility.
There are significant non-people cost opportunities in our Logistics division. Improved fleet management, including fuel efficiency and reducing wear and tear, represents a cost-saving opportunity. We have already rolled out our fleet management programme for our large heavy goods vehicles. From May 2015, we will be introducing telemetry and advanced driver training to our 7.5 tonne fleet.
Our people
Eligible full-time employees who received an allocation of 729 Free Shares will, subject to shareholder approval at our 2015 AGM, have received around GBP250 in dividend payments by 31 July 2015. In September 2014, we launched our first Save As You Earn scheme. More than 36,000 employees - approximately one quarter of those who were eligible to apply - applied to join.
Our Agenda for Growth agreement with the CWU includes terms covering employee pay, legally-binding terms covering protections and industrial stability as well as a programme of work to deliver change at pace in operations. In the short time since the existence of this agreement, we have seen a meaningful change in the way in which differences and disputes are resolved. Our unions are more committed than ever to mechanisms like mediation to resolve disputes in ways that guarantee our continued operations and uninterrupted customer services.
In March 2015, we confirmed a 2.8 per cent pay increase for our frontline employees. The 2015-16 award represents the final year of the three year pay deal agreed through the Agenda for Growth. During the year, we have launched 60 joint projects with the CWU. Our Together for Growth programme, which will train approximately 6,500 managers and union representatives by October 2015, represents the UK's largest ever investment in this form of joint training.
Thank you
Following our first AGM in July 2014, Mark Higson, Managing Director, Operations, stepped down from the Board. During the year, we have also announced the departure of John Allan and our Chairman, Donald Brydon. While John stepped down at the end of April 2015, Donald will remain with us until at least our 2015 AGM. I have experienced first-hand the many ways in which our Company has benefited from the counsel and dedication of these colleagues. I wish them all the best in their future endeavours. I would also like to extend special thanks to Donald Brydon, for sharing his wisdom and experience as we have sought to transform our Company.
I remain incredibly proud of the good work we do. Royal Mail is nothing without its people. We must continue to deliver difficult change. But, working together with our people and our unions, I am confident that we can continue to deliver the services our customers want and sustainable value for our shareholders.
Moya Greene
Chief Executive Officer
20 May 2015
(1) Defined as individually addressed parcels and packets weighing up to 30kg, that do not require special handling and comprise goods that have been ordered based on Triangle Management Services/RMG Fulfilment Market Measure. Excluding International
(2) Internal estimate based on historic growth trends (Triangle Management Services/RMG Fulfilment Market Measure, December 2014) and forecast data (Verdict E-retail Survey 2015)
(3) The least time-sensitive type of delivery
(4) Internal estimate based on historic growth trends and market insight
(5) Hall and Partners, Delivery Matters 2014
(6) Business Superbrands 2015
(7) We achieved 93.2 per cent against our First Class regulatory target when adjusted for force majeure
UK Parcels, International & Letters (UKPIL)
Summary trading results
Adjusted(1) Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
=============================================== ============ ========== ===========
Letters & other mail 3,400 3,514 (3%)
Marketing mail 1,167 1,111 5%
Total letters 4,567 4,625 (1%)
Parcels 3,190 3,162 1%
------------ ---------- -----------
Revenue(3) 7,757 7,787 Flat
Operating costs before transformation costs (7,142) (7,179) (1%)
----------------------------------------------- ------------ ---------- -----------
Operating profit before transformation costs 615 608
Operating profit margin before transformation
costs 7.9% 7.8% 40 bps
Transformation costs (145) (241)
----------------------------------------------- ------------ ---------- -----------
Operating profit after transformation costs 470 367
Operating profit margin after transformation
costs 6.1% 4.7% 20 bps
Volumes (m)
Letters
Addressed letters 13,009 13,342 (4%)
Unaddressed letters 3,157 3,143 1%
Parcels
=============================================== ============ ========== ===========
Royal Mail core network 1,015 991 3%
Parcelforce Worldwide 86 77 12%
=============================================== ============ ========== ===========
Total 1,101 1,068 3%
=============================================== ============ ========== ===========
Trading performance
The increasing challenges in the UK parcels market meant that our parcel revenue for the year was lower than we had originally anticipated. As a result, UKPIL revenue was flat at GBP7,757 million, as the one per cent decline in total letter revenue was offset by a one per cent increase in parcel revenue.
Parcel volumes were up three per cent, with growth in low average unit revenue (AUR) import parcels and the impact of our initiatives in account parcels more than offsetting the decline in higher AUR consumer/SME volumes. Parcel revenue grew by one per cent to GBP3,190 million, reflecting this change in mix and the impact of the competitive environment on pricing. Parcelforce Worldwide had strong volume growth of 12 per cent, driven by growth in the existing customer base and new business wins, including customers from the former City Link business. However it has seen downward pressure on pricing as a result of overcapacity in the market such that its revenue growth has been impacted.
Addressed letter volumes declined by four per cent (excluding the impact of election mailings), at the better end of our forecast range of a 4-6 per cent decline per annum in the medium term. This was mainly due to the improvement in UK economic conditions this year as we had anticipated. Overall letter revenue (including marketing mail) of GBP4,567 million decreased by one per cent. The impact of elections more than offset the estimated impact of direct delivery in the year of around GBP20 million. Marketing mail revenue of GBP1,167 million, which includes addressed and unaddressed marketing mail as well as revenue from our data businesses of GBP82 million, was up five per cent as a result of the improvement in UK economic conditions and the impact of MarketReach.
On a reported basis revenue reduced by GBP30 million to GBP7,757 million.
Operating costs
Adjusted Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
============================================= ========== ========== ===========
People costs (4,789) (4,760) 1%
============================================= ========== ========== ===========
Distribution and conveyance costs (821) (855) (5%)
Infrastructure costs (919) (946) (4%)
Other operating costs (613) (618) (1%)
========== ========== ===========
Total non-people costs (2,353) (2,419) (4%)
============================================= ========== ========== ===========
Total operating costs before transformation
costs (7,142) (7,179) (1%)
============================================= ========== ========== ===========
Total adjusted operating costs before transformation costs were down one per cent, better than our expectation of a flat performance.
People costs increased by one per cent as a result of increased pay costs, due to the three per cent frontline pay award and incentives, headcount expansion in Parcelforce Worldwide and IT, and the additional cost of delivering election mail. These increases were partially offset by a 2.5 per cent improvement in collections, processing and delivery productivity in the core network and savings achieved from the management reorganisation programme, announced in March 2014, of GBP42 million. We now expect this programme to deliver savings of around GBP80 million per annum from 2015-16. In accordance with the 2013 pay agreement, the frontline pay award for 2015-16 is 2.8 per cent. We continue to target annual productivity improvements of 2-3 per cent per annum. As a result of the new single-tier state pension scheme to be introduced in April 2016, the Group expects to see an increase in its employer National Insurance contributions for employees participating in the Royal Mail Pension Plan (RMPP) of up to GBP75 million, which would impact the 2016-17 financial year.
Non-people costs declined by four per cent. Distribution and conveyance costs reduced by five per cent partly due to a reduction in terminal dues as a result of a change in the geographic mix of export parcels in the period. Savings were also achieved on vehicle costs through improved fleet management and on fuel costs. Diesel and jet fuel costs were GBP186 million in the year, compared with GBP195 million in the prior year. We buy forward a large part of our fuel requirements, therefore we are not materially exposed to short term fluctuations in oil prices. We expect fuel costs to be around GBP171 million in 2015-16. Infrastructure costs were four per cent lower mainly due to cost savings on property, with reduced spend in relation to facilities management. Depreciation and amortisation of GBP242 million was broadly in line with the prior year. Other operating costs decreased by one per cent.
For 2015-16 we continue to target flat or better UKPIL costs on an underlying basis.
Adjusted operating profit before transformation costs was GBP615 million, giving a margin of 7.9 per cent, up 40 basis points on an underlying basis.
Reported total costs before transformation costs for UK businesses (UKPIL and Other) were broadly flat at GBP7,275 million (2013-14 GBP7,242 million), in line with our KPI measure.
On a reported basis, UKPIL operating costs before transformation costs increased by GBP34 million to GBP7,271 million. Reported pension costs increased by GBP73 million over the prior year, mainly due to the increase in the IAS 19 non-cash pension service charge, caused by a decrease in AA corporate bond yields.
Transformation costs
Adjusted Adjusted
52 weeks 52 weeks
(GBPm) 2015 2014
================================================== ========== ==========
Voluntary redundancy - ongoing (87) (14)
Voluntary redundancy - management reorganisation
programme 6 (102)
Project costs (55) (108)
Business transformation payments (9) (17)
================================================== ========== ==========
Total (145) (241)
================================================== ========== ==========
Total transformation costs of GBP145 million were marginally above our expectations due to an increased number of people leaving the business in the second half of the year. The prior year included a GBP104 million provision for the management reorganisation programme announced in March 2014 of which GBP6 million reversed in 2014-15. We continue to expect ongoing transformation costs of around GBP120-140 million per annum, depending on the level of voluntary redundancies announced in-year.
Project costs, including costs relating to Delivery Office revisions, have reduced from 2013-14.
The GBP9 million business transformation payments relate to the Business Transformation Agreement 2010. These payments are now largely complete and minimal payments are expected going forward.
Transformation costs are the same on a reported or adjusted basis.
Operating profit after transformation costs
Adjusted operating profit after transformation costs was GBP470 million, giving a margin of 6.1 per cent, up 20 basis points on an underlying basis.
Reported operating profit after transformation costs was GBP341 million, giving a margin of 4.4 per cent.
(1) Adjusted results exclude specific items, including the difference between the income statement pension charge and the total cash cost of pensions, including deficit payments
(2) All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for movements in foreign exchange in GLS, working days in UKPIL and other one-off items that distort the Group's underlying performance. For volumes, underlying movements are adjusted for working days in UKPIL and exclude elections in letter volumes
(3) Stamped, metered and other prepaid revenue channels are subject to statistical sampling surveys to derive the revenue relating to parcels, marketing mail and letters. These surveys are subject to continuous refinement, which may over time reallocate revenue between the products above, and which may occasionally lead to a consequent change to this estimate
General Logistics Systems (GLS)
Summary trading results (including discontinued operations)
52 weeks 52 weeks
(EURm) 2015 2014 Change
========================= ========= ========= =======
Revenue 2,100 1,957 7%
Operating costs (1,954) (1,829) 7%
========= ========= =======
Operating profit 146 128
Operating profit margin 7.0% 6.5% 50 bps
========================= ========= ========= =======
(GBPm)
========================= ========= ========= =======
Revenue 1,653 1,651
Operating costs (1,538) (1,543)
========= ========= =======
Operating profit 115 108
========================= ========= ========= =======
Volumes (m)(1) 436 404 8%
========================= ========= ========= =======
Trading performance
GLS continues to perform well. The business delivered a better than expected revenue performance this year, with seven per cent growth driven by an eight per cent increase in parcel volumes. Revenue growth has been achieved in all our markets, with particularly strong growth in Italy, as well as growth in emerging European markets. Germany, France and Italy, GLS' core markets, in aggregate still account for around 70 per cent of GLS' revenue.
On a reported basis, revenue of GBP1,557 million was flat as the improvement in underlying Euro revenue was offset by the impact of foreign exchange movements.
Operating costs
52 weeks 52 weeks
(EURm) 2015 2014 Change
======================================== ========= ========= =======
People costs (470) (435) 8%
======================================== ========= ========= =======
Distribution and conveyance costs (1,290) (1,204) 7%
Infrastructure costs (135) (128) 6%
Other operating costs (59) (62) (6%)
========= ========= =======
Total non-people costs (1,484) (1,394) 6%
======================================== ========= ========= =======
Total operating costs (1,954) (1,829) 7%
======================================== ========= ========= =======
Total operating costs were up seven per cent, broadly in line with volume growth.
People costs increased by eight per cent as a result of pay inflation and incentives, the impact of acquisitions, and semi-variable costs driven by volume. We have already seen some impact of the introduction of minimum wage legislation in Germany, which took effect from 1 January 2015. Non-people costs were up six per cent. Distribution and conveyance costs were up seven per cent, reflecting higher volumes. Infrastructure costs increased by six per cent due to higher depreciation and amortisation charges from IT investments. Other operating costs reduced by six per cent, mainly due to a non-recurring indirect tax charge and higher France restructuring costs in 2013-14.
On a reported basis, operating costs of GBP1,442 million were flat, as the increase in underlying Euro costs was offset by the impact of foreign exchange movements.
Operating profit
Reported operating profit increased to GBP115 million, representing a margin of 7.0 per cent.
Germany
The competitive environment, coupled with a challenging labour market, has had a continued impact on GLS Germany. It saw revenue growth of three per cent and remains the largest market for GLS by revenue. On 31 March 2015, GLS Germany sold its entire holding in its subsidiary DPD Systemlogistik (DPD SL) which had revenue of GBP96 million in the year, and has been reclassified as discontinued operations.
France
The turnaround programme in GLS France was ahead of plan this year. Operating losses reduced to EUR16 million (2013-14 EUR27 million) as the cost reduction element of the turnaround has progressed well and increased revenue growth was achieved. Revenue growth of seven per cent came from existing and new customers. We are targeting GLS France to be break-even in 2016-17.
Italy
Despite an unfavourable economic environment, GLS Italy has continued to deliver strong organic growth which, coupled with the benefit of acquisitions last year, drove a 16 per cent increase in revenue. GLS Italy continues to gain market share but this rate of growth is not expected to continue in 2015-16.
Other developed European markets (includes Austria, Belgium, Netherlands, Denmark, Ireland, Spain and Portugal)
Revenue increased across other developed European markets which represent 21 per cent (2013-14 21 per cent) of total GLS revenue. Whilst all countries saw revenue growth, the strongest was seen in Spain and Ireland, from a low base.
Developing/emerging European markets (includes Hungary, Slovenia, Slovakia, Czech Republic, Romania, Poland and Croatia)
Performance throughout the rest of Europe has been strong, with a good increase in revenue from developing/emerging European markets. The largest growth was in Croatia and Romania, from a low base.
(1) Includes volumes from DPD SL (2014-15 45 million; 2013-14 44 million)
Financial review
Reported results (continuing operations)
Group revenue was flat at GBP9,328 million (2013-14 GBP9,357 million). Operating costs before transformation costs of GBP8,717 million (2013-14 GBP8,688 million) were broadly flat. Group operating profit before transformation costs reduced to GBP611 million (2013-14 GBP669 million) and operating profit after transformation costs increased to GBP466 million (2013-14 GBP428 million). Profit before tax reduced from GBP1,664 million to GBP400 million. Earnings per share reduced from 127.5 pence to 32.5 pence.
Presentation of results
The remaining commentary in this financial review, unless otherwise indicated, focuses on the adjusted(1) results (including discontinued operations) and on movements in revenue, costs, profits and margins on an underlying basis(2) . This is consistent with the way that financial performance is measured by Management and reported to the Board and assists in providing a meaningful analysis of the trading results of the Group. As indicated in our financial report for the half year ended 28 September 2014, and as outlined in note 1 to the consolidated financial statements 'Basis of preparation', we have moved to presenting operating costs, operating profit and earnings with the difference between the income statement pension charge and the actual cash cost of pensions treated as a specific item.
Group revenue
Adjusted Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
============== ========== ========== ===========
Letters 4,567 4,625 (1%)
Parcels 3,190 3,162 1%
========== ========== ===========
UKPIL 7,757 7,787 Flat
GLS 1,653 1,651 7%
Other 14 18
============== ========== ========== ===========
Group 9,424 9,456 1%
============== ========== ========== ===========
Group revenue increased by one per cent, due to parcel revenue growth in UKPIL and in GLS.
Parcel revenue accounted for 51 per cent of Group revenue (2013-14 51 per cent). The factors impacting revenue in the year are described in the sections entitled 'UK Parcels, International & Letters (UKPIL)' and 'General Logistics Systems (GLS)'.
Group operating costs
Adjusted Adjusted
52 weeks 52 weeks Underlying
(GBPm) 2015 2014 change(2)
============================================= ========== ========== ===========
People costs (5,246) (5,224) 1%
============================================= ========== ========== ===========
Distribution and conveyance costs (1,836) (1,869) 1%
Infrastructure costs (1,023) (1,051) (3%)
Other operating costs (579) (583) (1%)
========== ========== ===========
Total non-people costs (3,438) (3,503) Flat
============================================= ========== ========== ===========
Operating costs before transformation costs (8,684) (8,727) 1%
Transformation costs (145) (241)
Operating costs after transformation costs (8,829) (8,968) 1%
============================================= ========== ========== ===========
Group operating costs before transformation costs were up one per cent as lower UKPIL costs as a result of cost actions were offset by increases in GLS, mainly due to higher volumes. The factors impacting operating costs in the year are described in the sections entitled 'UK Parcels, International & Letters (UKPIL)' and 'General Logistics Systems (GLS)'.
Group operating profit and margins
Adjusted Adjusted
52 weeks 52 weeks
(GBPm) 2015 2014
==================================================== ========== ==========
UKPIL 615 608
GLS 115 108
Other 10 13
Group operating profit before transformation costs 740 729
==================================================== ========== ==========
Adjusted operating profit before transformation costs was GBP740 million, giving an operating profit margin before transformation costs of 7.9 per cent, an increase of 40 basis points on an underlying basis.
Reported operating profit before transformation costs adjusted for foreign exchange movements (in line with our KPI measure) was GBP620 million.
Transformation costs are described in the section entitled 'UK Parcels, International & Letters (UKPIL)'
Adjusted Adjusted
52 weeks 52 weeks
(GBPm) 2015 2014
============================================= ========== ==========
UKPIL 470 367
GLS 115 108
Other 10 13
Group operating profit after transformation
costs 595 488
============================================= ========== ==========
Adjusted operating profit after transformation costs was GBP595 million, with UKPIL contributing 79 per cent (2013-14 75 per cent) to the Group total. The operating profit margin after transformation costs increased by 20 basis points on an underlying basis to 6.3 per cent.
Specific items
52 weeks 52 weeks
(GBPm) 2015 2014
====================================================== ========= =========
Operating specific items:
Pension charge to cash difference (129) (58)
Royal Mail Pension Plan amendment (non-cash) - 1,350
Transaction-related costs - (28)
Employee Free Shares charge(3) (non-cash) (169) (94)
Impairment and legacy costs (79) (15)
====================================================== ========= =========
Total operating specific items (377) 1,155
Non-operating specific items: - -
Profit on disposal of property, plant and equipment 133 19
Profit on disposal of associate undertaking - 2
Net pension interest (non-cash) 75 69
====================================================== ========= =========
Total specific items (169) 1,245
====================================================== ========= =========
The GBP129 million difference between the income statement pension charge (GBP552 million) and the actual cash paid out in respect of pensions, including the Royal Mail Senior Executives Pension Plan (RMSEPP) GBP10 million deficit payment (GBP423 million), is treated as an operating specific item. The increase in the difference of GBP71 million has been driven by a decrease in AA corporate bond yields. For 2015-16, given the continued fall in AA corporate bond yields, the difference between the income statement charge and the cash cost is expected to be around GBP255 million, an increase of around GBP125 million over 2014-15, mainly due to an increase in the IAS 19 pension service charge rate from 23.6 per cent to 29.8 per cent.
Other operating specific items in the period included the charge associated with the Employee Free Shares Offer of GBP169 million, which was lower than the GBP180 million we anticipated due to an adjustment for leavers in the year. The charge for 2015-16 is expected to be around GBP150 million, dependent on the level and mix of leavers. Impairment and legacy costs of GBP79 million included a GBP24 million one-off impairment charge in respect of certain IT assets, a GBP19 million movement in the provision for potential industrial diseases claims driven by a reduction in the discount rate, and GBP5 million of other costs, partially offset by a GBP15 million reversal of historical employment costs. It also includes the charge in respect of the anticipated fine on GLS France in the ongoing investigation by the French Competition Authority and associated costs. This has been reassessed at the full year to be GBP46 million (comprised of GBP40 million for the anticipated fine and GBP6 million associated costs) in light of further correspondence with the French Competition Authority and their approach in other recent cases. The actual level of the fine to be imposed on GLS France will not be known until the second half of 2015-16.
Non-operating specific items included property and asset disposal gains of GBP133 million, of which GBP106 million is in respect of profit on the sale of the Paddington site.
Net pension interest of GBP75 million is non-cash and is calculated by applying the schemes' discount rate at the beginning of the year to the net pension surplus. The net pension interest for 2015-16, based on the discount rate and net pension surplus at 29 March 2015, is expected to be a credit of GBP107 million.
Net finance costs (excluding specific items)
Net finance costs of GBP26 million (2013-14 GBP67 million) comprise finance costs of GBP30 million (2013-14 GBP71 million), offset by finance income of GBP4 million (2013-14 GBP4 million). The decrease in finance costs was largely due to the new loans and borrowings (including the EUR500 million bond) being at lower rates than the previous HM Government facilities.
Following the amendments to the syndicated bank facility in March 2015, and taking into account the full year impact of the Euro bond, the blended interest rate on gross debt (loans, bonds and finance leases of GBP638 million as at 29 March 2015) for 2015-16 is expected to be approximately three per cent.
Taxation
Effective rate
The effective tax rate on reported Group profit before tax is 18 per cent (2013-14 23 per cent). The UK effective tax rate on reported profit is 11 per cent (2013-14 22 per cent). This rate is significantly lower than the UK corporation tax rate as a result of reinvestment relief available to offset profit on UK property disposals. GLS' effective tax rate on reported profit is 51 per cent (2013-14 37 per cent) reflecting a range of tax rates across different territories, some of which are higher than in the UK, and losses (primarily in France) for which no deferred tax credit has been recognised. The increase over the prior year is mainly due to the charge in respect of the anticipated fine on GLS France in the ongoing investigation by the French Competition Authority, for which we anticipate no tax relief.
The effective tax rate on adjusted Group profits before tax is 24 per cent (2013-14 26 per cent). The rate has reduced broadly in line with the reduction in the UK corporation tax rate.
Current
The reported UK current tax charge of GBP7 million (2013-14 GBP1 million) represents a tax rate on profit before tax of two per cent (2013-14 nil per cent). Taxable profits in the UK are, as anticipated, largely covered by a combination of losses and capital allowance claims as well as the tax impacts of Employee Share Schemes. Reported GLS current tax charge of GBP32 million (2013-14 GBP36 million) represents a tax rate of 46 per cent (2013-14 34 per cent).
Deferred
The reported Group deferred tax charge was GBP33 million (2013-14 GBP349 million). This arose mainly as a result of capital allowance claims and utilisation of brought forward losses. In the prior period the charge was primarily in relation to the Group's pension position.
Earnings per share (EPS)
Adjusted EPS was 42.8 pence (reported 32.5 pence) on a basic and diluted basis.
Summary free cash flow
52 weeks 52 weeks
(GBPm) 2015 2014
============================================================ ========= =========
Reported EBITDA before transformation costs 889 942
Pension charge to cash difference (operating specific
item) 129 58
============================================================ ========= =========
Adjusted EBITDA before transformation costs 1,018 1,000
Trading working capital movements 1 (57)
Total investment (658) (617)
Tax (37) (38)
Net finance costs paid (18) (33)
Other - SAYE share option scheme charge difference,
dividends from associate 5 2
============================================================ ========= =========
In-year trading cash flow 311 257
Other working capital movements 11 140
Operating specific items (8) (35)
Proceeds from disposal of property (excluding London
property portfolio), plant and equipment and associate
undertaking (non-operating specific item) 39 36
============================================================ ========= =========
Free cash flow (before net cash flows from London property
portfolio) 353 398
London property portfolio net cash flows (non-operating
specific item) 100 -
Free cash flow 453 398
============================================================ ========= =========
Free cash flow of GBP453 million was up GBP55 million. It included GBP100 million net cash flows from the London property portfolio (which are not reflected in the KPI measure). In-year trading cash flow increased by GBP54 million to GBP311 million, despite an increase in total cash investment, explained below.
Adjusted EBITDA before transformation costs of GBP1,018 million increased due to the trading performance explained above. Trading working capital movements were broadly flat.
Investment
52 weeks 52 weeks
(GBPm) 2015 2014
================================================== ========= =========
Growth capital expenditure (178) (201)
Replacement capital expenditure (252) (215)
Transformation operating expenditure (228) (201)
Total investment (658) (617)
================================================== ========= =========
Proceeds from disposal of property (excluding
London property portfolio), plant and equipment
and associate undertaking 39 36
================================================== ========= =========
Net investment (619) (581)
================================================== ========= =========
Total investment increased from GBP617 million to GBP658 million. Growth capital expenditure was mainly in relation to parcels projects, especially IT to support barcoding, scanning and tracking, and GLS. The main replacement capital expenditure investments were in relation to vehicles, property and IT projects. Transformation operating expenditure was predominantly in relation to voluntary redundancies. Proceeds from the disposal of property (excluding London property portfolio), plant and equipment were GBP39 million giving a net investment of GBP619 million. Over 2013-14 and 2014-15 cumulative net cash investment was GBP1.2 billion as expected. Going forward cash investment, net of operating asset disposals, is expected to be in the range GBP550-600 million per annum.
Tax payments of GBP37 million are broadly in line with the current income taxation charge of GBP39 million. Net finance costs paid of GBP18 million reduced due to lower net debt and a lower cost of debt in the year.
Other working capital movements
52 weeks 52 weeks
(GBPm) 2015 2014
=============================================== ========= =========
March 2015 payroll paid after balance sheet
date of 29 March 2015 46 -
Stamps used but purchased in previous periods
and other deferred revenue (35) (10)
Unwinding of pension prepayment made in March
2012 - 150
Total other working capital movements 11 140
=============================================== ========= =========
Other working capital movements resulted in an GBP11 million inflow. There was a benefit of GBP46 million due to the timing of payroll payments in respect of monthly paid staff, with the payment for the March 2015 payroll occurring after 29 March 2015. This timing benefit will not reverse until 2018-19, with 12 monthly payroll payments in all years until then. This was offset by GBP35 million of stamps used in the year which had been purchased in previous periods and other deferred revenue movements. In 2013-14, the movements largely related to a one-off benefit of GBP150 million in respect of the March 2012 pension prepayment.
Net cash flows relating to the London property portfolio were GBP100 million and largely relate to the sale of the Paddington site in the year.
Net debt
Net debt decreased by GBP280 million to GBP275 million, mainly due to free cash flow generated, offset by dividend payments of GBP200 million.
In July 2014, Royal Mail issued EUR500 million 2.375% Senior Fixed Rate Notes due July 2024 with a fixed annual interest coupon of 2.375%. The majority of the proceeds were used to repay GBP350 million of the existing syndicated bank loans. This increased the average maturity of the Group's drawn down loans and loan facilities.
In March 2015, the Group took advantage of favourable market conditions to negotiate amendments to its syndicated bank facility to convert the remaining term loan into a revolving credit facility for greater flexibility. This had the effect of reducing the interest rates charged and extending the maturity date to March 2020 with the option to extend for a further two years. This enabled the remaining GBP250 million of the existing syndicated bank loans to be repaid on 9 March 2015, whilst maintaining the same level of facilities. The increased flexibility to pay down debt when not being utilised reduces future net interest cost.
Dividends
The Board is recommending a final dividend of 14.3 pence per ordinary share, payable on 31 July 2015 to shareholders whose names appear on the register of members on 3 July 2015, subject to shareholder approval at the AGM on 23 July 2015. This gives a total dividend for the year of 21.0 pence, an increase of five per cent over the notional 2013-14 full year dividend of 20.0 pence.
Property
On 14 October 2014, the Company announced that contracts had been exchanged for the sale of the former Paddington Mail Centre site to Great Western Developments Limited for GBP111 million in cash. Total net cash proceeds of the sale of GBP108 million were received on completion on 8 December 2014 and a profit on disposal of GBP106 million has been recorded as a non-operating specific item. We continue to market the site at Nine Elms and to evaluate our options in relation to the site at Mount Pleasant. These larger sites will require further investment in order to optimise value, which will be mainly met by the proceeds from the sale of the Paddington site.
Pensions
The IAS 19 pension position at 29 March 2015 was a surplus of GBP3,179 million, compared with a surplus of GBP2,068 million at 28 September 2014 and GBP1,723 million at 30 March 2014. The IAS 19 accounting position and key assumptions for the valuation are provided in note 8.
The process for the triennial valuation of RMPP at 31 March 2015 has commenced and the outcome will be announced in due course. If the assumptions used for the 2012 triennial valuation of RMPP and RMSEPP are rolled forward to 31 March 2015, the combined actuarial surplus would be GBP1,793 million, compared with GBP1,585 million at 30 September 2014 and GBP1,422 million at 31 March 2014. It is this basis that the Pension Trustees and the Company use to assess the ongoing funding needs of these schemes. The increase in the surplus was largely driven by the return on assets, in particular due to the increase in the market value of gilts and derivative assets that are principally held to hedge inflation and interest rate risk. To support the Company's commitment that, subject to certain conditions, the RMPP will remain open to defined benefit accrual until at least March 2018, the Trustee has hedged a large proportion of the interest and inflation exposure on this expected future service benefit accrual. On an actuarial basis the amount of the surplus relating to the liabilities hedged in advance of those accrued as at March 2015, was approximately GBP700 million. This element will unwind over time.
Under the 2012 triennial valuation of RMPP the Company agreed to pay ongoing cash contributions of 17.1 per cent of pensionable pay until 2018. At that time, this amounted to around GBP400 million per annum, and reflected the creation of an actuarial surplus of GBP1.6 billion as a result of the Pensions Reform in 2013. Without this surplus the Company contributions required would have been around GBP700 million per annum. Accordingly the surplus was expected to decline over time. Since then, market conditions for defined benefit schemes have worsened. However, the position of RMPP has been protected to date by the hedging strategy explained above such that we continue to expect that the RMPP actuarial surplus will reduce to neither a material surplus nor deficit by March 2018.
Underlying change
The financial review, unless otherwise indicated, focuses on the adjusted results (including discontinued operations) and on movements in revenue, costs, profits and margins on an underlying basis. Underlying movements take into account differences in working days in UKPIL and movements in foreign exchange in GLS. In addition, adjustments are made for non-recurring or distorting items, which by their nature may be unpredictable. For the full year, we have made adjustments for the GBP28 million one-off bonus paid to staff in the second half of 2013-14 and the movement in provisions in respect of the management reorganisation programme (MRP) of GBP110 million (GBP104 million provision in 2013-14 and a GBP6 milllion release in 2014-15). For volumes, underlying movements are adjusted for working days in UKPIL (2013-14 304.8; 2014-15 304), and exclude elections in letters volumes. Due to the expected flow of traffic over holiday periods in 2015-16, we estimate that the impact of working days in UKPIL will be around GBP25 million (2015-16 303 working days). See table below for a reconciliation for underlying movements.
Reconciliation for underlying movements
Adjusted
52 VAT One-off MRP Working Foreign Year-on-year
weeks credit bonus provision days exchange Underlying underlying
(GBPm) 2014 (UKPIL) (UKPIL) (UKPIL) (UKPIL) (GLS) comparator change
=================== ========= ======== ======== ========== ======== ========= =========== =============
Revenue
Group 9,456 - - - (20) (111) 9,325 1%
UKPIL 7,787 - - - (20) - 7,767 Flat
GLS 1,651 - - - - (111) 1,540 7%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Costs
Group
People (5,224) (2) 28 - - 25 (5,173) 1%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Distribution and
conveyance
costs (1,869) (13) - - - 68 (1,814) 1%
Infrastructure
costs (1,051) (12) - - - 7 (1,056) (3%)
Other operating
costs (583) (3) - - - 4 (582) (1%)
========= ======== ======== ========== ======== ========= =========== =============
Non-people costs (3,503) (28) - - - 79 (3,452) Flat
=================== ========= ======== ======== ========== ======== ========= =========== =============
Operating costs
before
transformation
costs (8,727) (30) 28 - - 104 (8,625) 1%
=================== ========= ======== ======== ========== ======== ========= =========== =============
UKPIL
People (4,760) (2) 28 - - - (4,734) 1%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Distribution and
conveyance
costs (855) (13) - - - - (868) (5%)
Infrastructure
costs (946) (12) - - - - (958) (4%)
Other operating
costs (618) (3) - - - - (621) (1%)
========= ======== ======== ========== ======== ========= =========== =============
Non-people costs (2,419) (28) - - - - (2,447) (4%)
=================== ========= ======== ======== ========== ======== ========= =========== =============
Operating costs
before
transformation
costs (7,179) (30) 28 - - - (7,181) (1%)
=================== ========= ======== ======== ========== ======== ========= =========== =============
GLS
Operating costs (1,543) - - - - 104 (1,439) 7%
=================== ========= ======== ======== ========== ======== ========= =========== =============
Profit, margins
and
EPS
Group
Operating profit
before
transformation
costs 729 (30) 28 - (20) (7) 700 6%
Margin 7.7% 7.5% 40 bps
Transformation
costs (241) - - 110 - - (131)
Operating profit
after
transformation
costs 488 (30) 28 110 (20) (7) 569 5%
Margin 5.2% 6.1% 20 bps
Profit before tax 421 (30) 28 110 (20) (7) 502
Tax (110) (131)
Profit for the
period 311 371
Profit
attributable
to the Group 308 368
Earnings per share 30.8p 36.8p
=================== ========= ======== ======== ========== ======== ========= =========== =============
UKPIL
Operating profit
before
transformation
costs 608 (30) 28 - (20) - 586 5%
Margin 7.8% 7.5% 40 bps
Transformation
costs (241) - - 110 - - (131)
Operating profit
after
transformation
costs 367 (30) 28 110 (20) - 455 3%
Margin 4.7% 5.9% 20 bps
=================== ========= ======== ======== ========== ======== ========= =========== =============
GLS
Operating profit 108 - - - - (7) 101 14%
Margin 6.5% 6.5% 50 bps
=================== ========= ======== ======== ========== ======== ========= =========== =============
Events after the reporting period
On 31 March 2015, after the financial year end, GLS Germany disposed of its wholly-owned subsidiary, DPD Systemlogistik GmbH & Co. KG (DPD SL) to DPD GeoPost (Deutschland) GmbH. The disposal resulted in a post-tax profit of around EUR40 million (GBP29 million), which will be reflected as a specific item in the Group's 2015-16 financial statements.
Matthew Lester
Chief Finance Officer
20 May 2015
(1) Adjusted results exclude specific items, including the difference between the income statement pension charge and the total cash cost of pensions, including deficit payments. The figures include DPD Systemlogistik, a subsidiary of GLS Germany, which was owned by the Group for the full reporting period, and sold following the year end, and has been reclassified as discontinued operations
(2) All movements are on an underlying basis unless otherwise stated. Underlying change is calculated after adjusting for movements in foreign exchange in GLS, working days in UKPIL and other one-off items that distort the Group's underlying performance. See reconciliation for underlying movements
(3) Includes GBP6 million (2013-14 GBP3 million) provision for National Insurance, which will be cash settled
Business risks
The table below details the principal business risks, their current status and how the Group mitigates these risks. The status includes our assessment of whether the risk is increasing ( ), decreasing ( ) or stable ( ). The alignment to strategy indicates those aspects of the business strategy that would be impacted by the risk, were it to materialise.
Principal risk Status How we are mitigating Alignment
the risk to
strategy
Changes in market conditions and customer behaviour
The letters and parcels
markets are increasingly
competitive, customers
continue to demand
more and our competitors
are responding quickly
to these changing
demands:
Customer behaviour A number of Being a
and Royal Mail's carriers * We use continuous in-depth market monitoring and successful
responsiveness to are expanding research to track how well we match our customers' parcels
market changes relative their needs, including relative to our competitors. business
to that of competitors operations.
Additional Managing
Changes in customer market * We have implemented a range of products and service the
behaviour, and changes capacity enhancements at pace. decline
to the markets in increases in letters
which the Group sells downward price
its products and pressure. * Further initiatives will provide service enhancements, Being
services, could impact including additional tracking capability and delivery customer
our forecasts for At the same solutions, and enhancing customers' online focused
letter and parcel time, experience.
volumes. customers
increasingly
There is a risk that demand * Our Mailmen campaign is promoting the value of
our product offerings faster, more marketing mail.
and customer experience flexible
may not adequately and responsive
meet evolving customer services,
needs, or that we with high
are unable to innovate reliability.
or adapt our commercial
and operational activities There is a
quickly enough to continuing
respond to changes requirement to
in the market. invest
in growth and
innovation
to meet these
challenges
in the market
place.
Economic environment Economic Being a
conditions * We have a robust modelling and forecasting framework successful
Historically there in the UK that uses a range of quantitative and qualitative parcels
has been a correlation improved approaches to provide early warnings of changes to business
between economic over the year. overall volumes and the profile of letter and parcel
conditions and the The volumes, and to assess the effect of our pricing Managing
level of parcel and recovery in structures. We continually review and upgrade these the
letter volumes. Flat Europe models. decline
or adverse economic remains in letters
conditions could fragile. Low
impact our ability growth or * We have taken short term actions, and are developing
to maintain and grow recession longer term responses to control costs.
revenue, by either in Europe
reducing volumes could impact
or encouraging customers our
to adopt cheaper international
service options for parcel
sending letters and volumes,
parcels. including
those handled
by GLS.
Business transformation
Royal Mail must continuously
become more efficient
and flexible in order
to compete effectively
in the letters and
parcels markets:
Efficiency We continue to Being a
make * We have agreed with the CWU a programme to enable successful
The success of our efficiency better alignment of resourcing and workload. parcels
strategy relies on improvements. business
the effective control Our
of costs and the productivity * Our Together for Growth programme, supported by a Managing
delivery of efficiency improvement joint mediation process, facilitates a collaborative the
benefits. is within our approach to improving efficiency at a local level. decline
target in letters
range.
However, Ofcom * A task force will address attendance issues, with a
has announced particular focus on long term employee absence.
a review
of what is a
reasonable * A cost-conscious regime is in place to understand
rate of cost drivers better and further develop and embed
efficiency cost-consciousness, and impose rigorous control over
improvement discretionary spend.
for Royal
Mail. It may
make
unfavourable
changes to the
regulatory
framework to
incentivise
further
efficiency.
Attracting and retaining Turnover in Being a
senior management senior * The Group's remuneration policy sets out that the successful
and key personnel and key overall remuneration package should be sufficiently parcels
personnel has competitive to attract, retain and motivate business
Our performance, been at normal executives with the commercial experience to run a
operating results levels large, complex business in a highly challenging Managing
and future growth for the context. the
depend on our ability business decline
to attract and retain during in letters
talent with the appropriate the year, but * We operate a succession planning process and have in
level of expertise. this place a talent identification and development Being
remains an programme. customer
inherent focused
business risk.
IT transformation The Being a
transformation * The IT transformation programme has a stretching successful
The scale and complexity programme will target completion date that will minimise the risk of parcels
of the IT transformation continue operating outdated legacy systems. business
programme and the to run at its
ongoing requirement peak Managing
for effective management throughout the * We have strengthened standard programme management the
of the transition next and governance disciplines to provide intensive focus decline
are sources of risk financial on key aspects of the programme, such as managing in letters
to its successful year, moving interdependencies with other programmes and
delivery. from one implementing the transition. Being
service customer
Failure to improve provider focused
our IT systems or to a * Our Internal Audit department provides independent
successfully implement diversified assurance about the programme delivery.
the IT transformation supplier
programme would increase model. This
the risk of: security impacts
breaches and attacks; all of our
a material adverse core systems.
effect on the Group's At the same
operations, and IT time, we
systems being unable have projects
to support the business running
plan. in parallel to
give
customers a
higher
standard of
service
using more
sophisticated
technology.
Regulatory and legislative environment
The business operates
in a regulated environment.
Changes in legal
and regulatory requirements
could impact our
ability to meet our
targets and goals:
Sustainability of During 2014, Managing
the Universal Service we made * We are engaging with stakeholders, including the
Obligation (USO) a submission politicians, economists and academics, about the decline
to Ofcom, threats to the financial sustainability of the in letters
In our liberalised requesting Universal Service. The Commons Business Innovation
postal market, other that it and Skills Committee has published a report calling
operators are able brought for Ofcom to take steps to ensure the Universal
to offer direct delivery forward a full Service can be protected.
services by cherry-picking review of the
easy-to-serve urban impact
areas, without having of direct * We have also submitted a detailed response to Ofcom's
to adhere to the delivery proposals under the Access Pricing Review, setting
same high delivery on the out our view that the proposals are disproportionate.
requirements and Universal
quality standards Service.
as Royal Mail. However, in
December
The combination of 2014, Ofcom
mandated access(1) decided
, uncertainty about that there
access price proposals were no
and the rollout of grounds for
direct delivery, regulatory
and structural decline intervention
in letters, poses at this
a serious risk to time. This may
the Group's future lead
ability to earn revenue to further
necessary to ensure direct
the sustainable provision delivery
of the USO. expansion in
the future.
Whistl, a
subsidiary
of PostNL, has
expanded
its direct
delivery
operation into
several
urban areas
across
the UK. On 11
May 2015,
Whistl
announced that
it had
commenced an
extensive
review of
the viability
and potential
for the
rollout of
an end-to-end
postal
delivery
service in
the UK. Its
current
end-to-end
service
is suspended
during
the review
process.
Ofcom also
announced
in December
2014 that
it would be
carrying
out a review
of the
regulatory
rules that
apply to Royal
Mail's
access prices
(Access
Pricing
Review).
Ofcom's
proposals
represent
a more
restrictive
regime that
would prevent
Royal Mail
from
responding
to
competition,
putting
the financial
sustainability
of the
Universal
Service
at risk.
We proposed
certain
changes to our
access
contracts in
January
2014. Some of
these
proposals are
the subject
of a
Competition
Act
investigation
by Ofcom.
They were
suspended,
never
implemented
and
have now been
withdrawn.
VAT status The judicial Managing
review * We will continue to support HMRC, as required, in the
Royal Mail is currently found that defending its implementation of VAT legislation in decline
exempt from Value HMRC has respect of access services. in letters
Added Tax (VAT) in correctly
a number of areas, implemented
in which this status VAT * We have established a direct link with the European
is under threat: legislation Commission and continue to lobby more widely in
and relation to both the Vouchers Directive and the VAT
* HMRC's implementation of VAT legislation on mandated the services status of postal services.
access services has been subject to a judicial should
review; remain exempt
from * We liaise with HM Treasury to seek to minimise the
VAT. However, impact of the proposed Vouchers Directive.
* The European Commission is reviewing VAT exemptions the plaintiff
more generally, and postal services fall within the in the case
scope of that review; has been
granted leave
to appeal
* The EU has published a proposal for a 'Vouchers the decision,
Directive'; as currently drafted, this would alter and we
the VAT treatment of postage stamps. may not have a
definitive
resolution
until 2016.
Although Royal Mail The European
could benefit from Commission
greater recoverability has published
of VAT on costs if details
the VAT exemption of responses
for USO and access to its
services was removed, consultation
the cost to customers about
who cannot reclaim the future of
VAT would be increased, VAT
making us less competitive. exemptions,
but has not
progressed
the matter
further.
There has been
no indication
of the likely
outcome
or timescale
of the
exercise.
The proposed
Vouchers
Directive
remains under
discussion in
Brussels.
Employment legislation The Employment Being a
Appeals * We are closely monitoring developments in the case successful
Changes to laws and Tribunal has law in this area and are in discussions with our parcels
regulations relating ruled recognised unions as to how to deal with this issue. business
to employment (including that, in We hope to take a collaborative approach once the
the interpretation excluding case law becomes clearer. Managing
and enforcement of regular the
those laws and regulations) overtime from decline
could, directly or holiday pay * Based on our estimates of the potential financial in letters
indirectly, increase calculations, impact, we believe that we have made sufficient
the Group's labour the Government provision for any historic liabilities that may
costs, which, given has arise.
the size of the Group's misinterpreted
workforce, could the
have an adverse effect Working Time
on the Group. Directive
since 1998.
Whilst this
decision
appears to
have
crystallised
the risk of
having
to include
overtime
in the
calculation
of holiday
pay, the
position is
still unclear
as to how to
calculate
the
appropriate
payments
and exactly
who should
receive such
payments.
The case law
is still
evolving in
this area.
Pension risk
The Group continues
to operate a defined
benefit pension scheme,
the Royal Mail Pension
Plan, open to accrual
for existing members.
Affordability of The first Being a
the Royal Mail Pension review of * The RMPP Trustee is continuing to hedge future successful
Plan our interest rate and inflation rate exposure, to reduce parcels
commitment, the risk that the Group's commitment to March 2018 business
The actuarial cost which cannot be met.
of providing an additional will be Managing
year's benefit was carried out the
around GBP700 million in conjunction * We are engaging with CWU and Unite/ CMA on the decline
based on the Plan's with emerging issues and potential courses of action. in letters
March 2012 actuarial the unions,
valuation. will be
completed by
In recognition of March
the surplus that 2018.
was created by Pensions
Reform in September A large
2013, the Group was proportion
able to maintain of the Plan's
its cash contribution future
at around GBP400 interest rate
million a year. and inflation
rate exposure
As part of Pensions has been
Reform, the Group hedged and we
committed, subject expect
to conditions, to there to be
keep the Plan open neither
without further amendment a material
until at least March surplus
2018. nor deficit at
March
Changes in financial 2018.
market conditions,
or demographic or However, gilt
other factors may yields
impact our continued have continued
ability to fund this to fall,
commitment. creating a
risk to
the
affordability
of
the Plan after
that
date.
In addition,
under
the 2012
actuarial
valuation the
Company
is required to
pay
additional
contributions
of up to GBP50
million
a year from
April 2016
if the Trustee
considers
these
necessary to
maintain the
Plan's
projected
funding
position
in March 2019.
This
requirement
will
be reviewed as
part
of the Plan's
March
2015 actuarial
valuation.
The valuation
process
has commenced,
and
the outcome
will be
announced in
due course.
Industrial relations
There is extensive
trade union recognition
in respect of our
workforce in the
UK:
Industrial action The current Being a
pay deal * We have agreed and implemented with the CWU a Joint successful
There is a risk that runs until Statement on Growth, Efficiency and Incentives, parcels
one or more material 2015-16 enabling collaborative improvements in operational business
disagreements or and is rooted efficiency.
disputes between in the Managing
the Group and its Agenda for the
trade unions could Growth * The Joint Statement is supported by our Together for decline
result in widespread agreement Growth training programme, an industrial relations in letters
localised or national developed and business skills package for managers and CWU
industrial action. jointly with representatives. Being
the CWU. The customer
Widespread localised agreement focused
or national industrial represents a * We have established a process that uses trained
action would cause fundamental mediators nominated by and representing both CWU and
material disruption change in our the business, for resolution of local disputes.
to our business in relationship
the UK and would with CWU, and
be likely to result promotes
in an immediate and stability in
potentially ongoing industrial
significant loss relations.
of revenue for the
Group. It may also However, the
cause Royal Mail increasingly
to fail to meet the competitive
Quality of Service environment
targets prescribed and the need
by Ofcom, leading for change
to enforcement action will challenge
and fines. Royal
Mail and its
trade
unions to find
effective
solutions
without
recourse
to industrial
action.
(1) Royal Mail is obligated to provide access to its inward mail centres by our Regulator, Ofcom. This means that competitors to Royal Mail can collect and sort mail posted by businesses and hand it to Royal Mail for final mile delivery
Consolidated financial statements
Statement of Directors' responsibilities in respect of the Group financial statements --------------------------------------------------- Consolidated income statement(1) =================================================== Consolidated statement of comprehensive income(1) =================================================== Consolidated statement of cash flows(1) =================================================== Consolidated balance sheet(2) =================================================== Consolidated statement of changes in equity(1) =================================================== Notes to the consolidated financial statements =================================================== 1. Basis of preparation =================================================== 2. Segment information =================================================== 3. Transformation costs =================================================== 4. Specific items =================================================== 5. Net finance costs and net debt =================================================== 6. Taxation =================================================== 7. Free cash flow =================================================== 8. Employee benefits - pensions =================================================== 9. Earnings per share =================================================== 10. Share-based payment =================================================== 11. Dividends =================================================== 12. Assets and liabilities held for sale =================================================== 13. Related party information =================================================== 14. Events after the reporting period =================================================== Shareholder information =================================================== Forward-looking statements ===================================================
(1) For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014
(2) At 29 March 2015 and 30 March 2014
Statement of Directors' responsibilities in respect of the Group financial statements
The responsibility statements below have been prepared in connection with the Company's full Annual Report and Financial Statements 2014-15. Certain parts thereof are not included in this announcement.
Statement of Directors' responsibilities in relation to the consolidated financial statements
Each of the Directors, whose names and functions are listed in the Annual Report and Financial Statements 2014-15, confirms that, to the best of each person's knowledge and belief:
-- the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Group's and the Company's performance, business model and strategy;
-- the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
-- the Strategic Report and the Directors' Report contained in the Annual Report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face.
Statement of Directors' responsibilities in relation to the Company's financial statements
Each of the Directors, whose names and functions are listed in the Annual Report and Financial Statements 2014-15, confirms that, to the best of each person's knowledge and belief:
-- the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
-- the Strategic Report and the Directors' Report contained in the Annual Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Moya Greene Matthew Lester Chief Executive Officer Chief Finance Officer 20 May 2015
Consolidated income statement
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014
52 weeks 2015 52 weeks 2014
=================================== ===================================
Specific Specific
Reported(1) items(2) Adjusted(2) Reported(1) items(2) Adjusted(2)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
================================== ====== =========== ========= =========== =========== ========= ===========
Continuing operations
Revenue* 2 9,328 - 9,328 9,357 - 9,357
Operating costs (8,717) (129) (8,588) (8,688) (58) (8,630)
================================== ====== =========== ========= =========== =========== ========= ===========
People costs 4 (5,359) (129) (5,230) (5,267) (58) (5,209)
Distribution and conveyance
costs (1,764) - (1,764) (1,796) - (1,796)
Infrastructure costs (1,019) - (1,019) (1,047) - (1,047)
Other operating costs (575) - (575) (578) - (578)
================================== ====== =========== ========= =========== =========== ========= ===========
Operating profit before
transformation
costs 611 (129) 740 669 (58) 727
Transformation costs 3 (145) - (145) (241) - (241)
================================== ====== =========== ========= =========== =========== ========= ===========
Operating profit after
transformation
costs 466 (129) 595 428 (58) 486
Operating specific items:
Royal Mail Pension Plan
amendment 4 - - - 1,350 1,350 -
Transaction-related costs 4 - - - (28) (28) -
Employee Free Shares charge 4 (169) (169) - (94) (94) -
Impairment and legacy costs 4 (79) (79) - (15) (15) -
================================== ====== =========== ========= =========== =========== ========= ===========
Operating profit 218 (377) 595 1,641 1,155 486
Non-operating specific items:
Profit on disposal of property,
plant and equipment 4 133 133 - 19 19 -
Profit on disposal of associate
undertaking 4 - - - 2 2 -
================================== ====== =========== ========= =========== =========== ========= ===========
Earnings before interest and
tax 351 (244) 595 1,662 1,176 486
Finance costs 5 (30) - (30) (71) - (71)
Finance income 5 4 - 4 4 - 4
Net pension interest
(non-operating
specific item) 4/8(c) 75 75 - 69 69 -
================================== ====== =========== ========= =========== =========== ========= ===========
Profit before tax 400 (169) 569 1,664 1,245 419
Tax (charge)/credit 6 (72) 66 (138) (386) (276) (110)
================================== ====== =========== ========= =========== =========== ========= ===========
Profit for the period from
continuing
operations 328 (103) 431 1,278 969 309
Discontinued operations:
Profit after tax for the period
from discontinued operations 12 - - - 2 - 2
================================== ====== =========== ========= =========== =========== ========= ===========
Profit for the period 328 (103) 431 1,280 969 311
================================== ====== =========== ========= =========== =========== ========= ===========
Profit for the period attributable
to:
Equity holders of the parent
Company 325 (103) 428 1,277 969 308
Non-controlling interests 3 - 3 3 - 3
================================== ====== =========== ========= =========== =========== ========= ===========
Earnings per share:
Basic and diluted - continuing
operations 9 32.5p (10.3)p 42.8p 127.5p 96.9p 30.6p
Basic and diluted - total Group 9 32.5p (10.3)p 42.8p 127.7p 96.9p 30.8p
================================== ====== =========== ========= =========== =========== ========= ===========
Total Group revenue* 9,424 - 9,424 9,456 - 9,456
================================== ====== =========== ========= =========== =========== ========= ===========
Continuing operations 9,328 - 9,328 9,357 - 9,357
Discontinued operations 96 - 96 99 - 99
================================== ====== =========== ========= =========== =========== ========= ===========
(1) Reported - prepared in accordance with International Financial Reporting Standards (IFRS)
(2) Specific items and Adjusted - non-GAAP measures explained in the Financial review and in note 1 to these financial statements
Consolidated statement of comprehensive income
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014
Reported Reported
52 weeks 52 weeks
2015 2014
Notes GBPm GBPm
============================================================ ===== ========= =========
Profit for the period 328 1,280
Other comprehensive income/(expense) for the period
from continuing operations:
Items that will not be subsequently reclassified to
profit or loss:
Amounts relating to pensions accounting 1,211 (344)
============================================================ ===== ========= =========
IFRIC 14 adjustment relating to pension surplus 8 (2) (8)
Actuarial gains/(losses) on defined benefit schemes 8(c) 1,512 (453)
Tax on above items(1) 6 (299) 117
============================================================ ===== ========= =========
Items that may be subsequently reclassified to profit
or loss:
Foreign exchange translation differences (47) (12)
============================================================ ===== ========= =========
Exchange differences on translation of foreign operations
(GLS)(2) (74) (12)
Net gain on hedge of a net investment (EUR500 million
bond - 2.375% Senior Fixed Rate Notes due July 2024) 27 -
============================================================ ===== ========= =========
Designated cash flow hedges (21) (19)
============================================================ ===== ========= =========
Losses on cash flow hedges deferred into equity (53) (24)
Losses on cash flow hedges released from equity to
income 27 4
Tax on above items 6 5 1
============================================================ ===== ========= =========
Total other comprehensive income for the period 1,143 (375)
============================================================ ===== ========= =========
Total comprehensive income for the period 1,471 905
============================================================ ===== ========= =========
Total comprehensive income for the period attributable
to:
Equity holders of the parent Company 1,468 902
Non-controlling interests 3 3
============================================================ ===== ========= =========
(1) Includes GBP4 million (2013-14 GBPnil million) in relation to Royal Mail Senior Executives Pension Plan (RMSEPP) deficit payments
(2) Includes GBP3 million (2013-14 GBPnil million) in relation to net deferred tax liabilities (note 6)
Consolidated statement of cash flows
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014
Reported Reported
52 weeks 52 weeks
2015 2014
Notes GBPm GBPm
=============================================================== ===== ========= =========
Cash flow from operating activities:
Operating profit before transformation costs 611 669
Adjustment for:
Depreciation and amortisation 279 274
Share of post-tax profit from associate (1) (3)
=============================================================== ===== ========= =========
EBITDA before transformation costs 889 940
Working capital movements 12 83
=============================================================== ===== ========= =========
Decrease in inventories 1 2
(Increase)/decrease in receivables (52) 81
Increase in payables 72 19
Net increase in derivative assets (8) (2)
Decrease in provisions (non-specific items) (1) (17)
=============================================================== ===== ========= =========
Pension charge to cash difference (operating specific
item) 129 58
Share-based awards (SAYE and LTIP) charge to cash difference 5 -
Cash cost of transformation operating expenditure(1) (228) (201)
Cash cost of operating specific items (8) (35)
=============================================================== ===== ========= =========
Cash inflow from operations 799 845
Income tax paid (37) (38)
=============================================================== ===== ========= =========
Net cash inflow from operating activities 762 807
=============================================================== ===== ========= =========
Cash flows from investing activities:
Dividends received from associate undertaking - 2
Finance income received 4 4
Proceeds from disposal of property (excluding London
property portfolio), plant and equipment (non-operating
specific item) 39 33
London property portfolio disposals (non-operating
specific item) 100 -
=============================================================== ===== ========= =========
Disposal proceeds 111 -
Related cash costs (11) -
=============================================================== ===== ========= =========
Proceeds from disposal of associate undertaking (non-operating
specific item) - 3
Net cash inflow from discontinued operations - 2
Purchase of property, plant and equipment(1) (267) (341)
Acquisition of business(1) (7) (2)
Purchase of intangible assets (software)(1) (153) (69)
Payment of deferred consideration in respect of prior
years' acquisitions(1) (3) (4)
Net purchase of financial asset investments (current) (55) -
=============================================================== ===== ========= =========
Net cash outflow from investing activities (342) (372)
=============================================================== ===== ========= =========
Net cash inflow before financing activities 420 435
=============================================================== ===== ========= =========
Cash flows from financing activities:
Finance costs paid on refinancing of loan facilities - (45)
Other finance costs paid (22) (37)
Payment of capital element of obligations under finance
lease contracts (75) (73)
Cash received on sale and leasebacks 13 109
New loans 393 600
Repayment of loans and borrowings (600) (973)
Dividends paid to equity holders 11 (200) -
Dividend paid to non-controlling interests (1) -
=============================================================== ===== ========= =========
Net cash outflow from financing activities (492) (419)
=============================================================== ===== ========= =========
Net (decrease)/increase in cash and cash equivalents (72) 16
Effect of foreign currency exchange rates on cash and
cash equivalents (7) (1)
Cash and cash equivalents at the beginning of the period 366 351
=============================================================== ===== ========= =========
Cash and cash equivalents at the end of the period 287 366
=============================================================== ===== ========= =========
(1) Items included in total investment - note 7
Consolidated balance sheet
At 29 March 2015 and 30 March 2014
Reported Reported
at 29 at 30
March March
2015 2014
Notes GBPm GBPm
====================================================== ===== ======== ========
Non-current assets
Property, plant and equipment 1,933 1,989
Leasehold land payment 2 3
Goodwill (mainly investment in GLS) 182 197
Intangible assets (mainly software) 300 195
Investment in associate 5 4
Financial assets - pension escrow investments 5 20 20
- derivatives 2 3
Retirement benefit asset - net of IFRIC 14 adjustment 8 3,179 1,723
Other receivables 11 13
Deferred tax assets 6 8 9
====================================================== ===== ======== ========
5,642 4,156
Assets held for sale 12 32 3
====================================================== ===== ======== ========
Current assets
Inventories 20 22
Trade and other receivables 949 926
Financial assets - derivatives 5 2
- short-term deposits 5 56 1
Cash and cash equivalents 5 287 366
====================================================== ===== ======== ========
1,317 1,317
====================================================== ===== ======== ========
Total assets 6,991 5,476
====================================================== ===== ======== ========
Current liabilities
Trade and other payables (1,668) (1,652)
Financial liabilities - obligations under finance
leases 5 (93) (87)
- derivatives (34) (12)
Income tax payable (14) (14)
Provisions (149) (173)
====================================================== ===== ======== ========
(1,958) (1,938)
Non-current liabilities
Financial liabilities - interest bearing loans and
borrowings 5 (366) (600)
- obligations under finance leases 5 (179) (255)
- derivatives (14) (5)
Provisions (104) (95)
Other payables (40) (31)
Deferred tax liabilities 6 (474) (151)
====================================================== ===== ======== ========
(1,177) (1,137)
Liabilities associated with assets held for sale 12 (10) -
====================================================== ===== ======== ========
Total liabilities (3,145) (3,075)
====================================================== ===== ======== ========
Net assets 3,846 2,401
====================================================== ===== ======== ========
Equity
Share capital 10 10
Retained earnings 3,843 2,332
Other reserves (16) 52
====================================================== ===== ======== ========
Equity attributable to parent Company 3,837 2,394
Non-controlling interests 9 7
====================================================== ===== ======== ========
Total equity 3,846 2,401
====================================================== ===== ======== ========
The financial statements were approved and authorised for issue by the Board of Directors on 20 May 2015 and were signed on its behalf by:
Moya Greene Matthew Lester Chief Executive Officer Chief Finance Officer
Consolidated statement of changes in equity
For the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014
Equity
Foreign holders
Share Retained currency Hedging of Non-controlling Total
capital earnings translationreserve reserve the parent interests Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======== ========= =================== ======== =========== =============== =======
Reported at 31 March 2013 - 1,318 73 10 1,401 4 1,405
=========================== ======== ========= =================== ======== =========== =============== =======
Profit for the period - 1,277 - - 1,277 3 1,280
Other comprehensive expense
for the period - (344) (12) (19) (375) - (375)
Share capital issue 10 (10) - - - - -
Employee Free Shares
issue(1)
(note 10) - 91 - - 91 - 91
=========================== ======== ========= =================== ======== =========== =============== =======
Reported at 30 March 2014 10 2,332 61 (9) 2,394 7 2,401
=========================== ======== ========= =================== ======== =========== =============== =======
Profit for the period - 325 - - 325 3 328
Other comprehensive
income/(expense)
for the period - 1,211 (47) (21) 1,143 - 1,143
Release of Post Office
Limited
separation provision - 7 - - 7 - 7
Dividend paid to equity
holders
of the parent (note 11) - (200) - - (200) - (200)
Dividend paid to
non-controlling
interests - - - - - (1) (1)
Share-based payments (note
10):
- Employee Free Shares
issue(1) - 163 - - 163 - 163
- Save As You Earn (SAYE)
scheme - 1 - - 1 - 1
- Long-Term Incentive Plan
(LTIP)(2) - 4 - - 4 - 4
=========================== ======== ========= =================== ======== =========== =============== =======
Reported at 29 March 2015 10 3,843 14 (30) 3,837 9 3,846
=========================== ======== ========= =================== ======== =========== =============== =======
(1) Excludes GBP6 million (2013-14 GBP3 million) National Insurance, charged to the income statement, included in provisions on the balance sheet
(2) Excludes GBP1 million (2013-14 GBPnil million) National Insurance, charged to the income statement, included in provisions on the balance sheet
Notes to the consolidated financial statements
1. Basis of preparation
General information
Royal Mail plc (the Company) is incorporated in the United Kingdom (UK) and the consolidated financial statements are produced in accordance with the Companies Act 2006 and applicable International Financial Reporting Standards (IFRS) as adopted by the European Union. The UK is the Company's country of domicile.
The Company was listed on the London Stock Exchange on 15 October 2013.
The consolidated financial statements of the Company for the 52 weeks ended 29 March 2015 (2013-14 52 weeks ended 30 March 2014) comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in its associate undertaking.
The consolidated financial statements for the 52 weeks ended 29 March 2015 were authorised for issue by the Board on 20 May 2015.
Basis of preparation
(a) The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing its financial statements.
(b) The consolidated financial statements of the Group have been prepared in accordance with IFRS as adopted for use in the European Union (EU). These consolidated financial statements have been prepared in accordance with the accounting policies followed in the preparation of the Group's annual consolidated financial statements for the year ended 29 March 2015.
The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 29 March 2015 or 30 March 2014. The Financial report for the full year ended 29 March 2015 was approved by the Board of Directors on 20 May 2015. Statutory accounts for the year ended 29 March 2015 have not yet been delivered to the Registrar of Companies. The auditor's report on the statutory accounts for the year ended 29 March 2015 was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Statutory accounts for the year ended 30 March 2014 have been delivered to the Registrar of Companies. The auditor's report on the statutory accounts for the year ended 30 March 2014 was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The Annual Report and Financial Statements 2014-15, together with details of the Annual General Meeting (AGM), will be despatched to shareholders before the AGM. The AGM will take place on 23 July 2015.
Reported performance
The consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and as issued by the International Accounting Standards Board (IASB) (i.e. on a 'reported' basis).
Non-GAAP measures of performance
In the reporting of financial information, the Group uses certain measures that are not defined under IFRS, the Generally Accepted Accounting Principles (GAAP), under which the Group reports. The Directors believe that these non-GAAP measures assist with the understanding of the performance of the business.
These non-GAAP measures are not a substitute, or superior to, any IFRS measures of performance but they have been included as Management considers them to be an important means of comparing performance year-on-year and they include key measures used within the business for assessing performance.
Transformation costs
These costs relate to the ongoing transformation of the business, and include voluntary redundancy, project costs and other transformation-related payments.
Reported operating profit before transformation costs
This is the operating profit including the 'pension charge to cash difference' operating specific item (see below for definition) and before transformation costs. This is a key performance indicator in the Corporate Balanced Scorecard which is used to determine employee incentives.
Reported operating profit after transformation costs
This is the operating profit including the 'pension charge to cash difference' operating specific item and after transformation costs.
Operating specific items
These are recurring or non-recurring items of income or expense of a particular size and/or nature relating to the operations of the business that in Management's opinion require separate identification. These items are included within 'reported' results but are excluded from 'adjusted' results.
These items include: the recurring 'pension charge to cash difference' (resulting from the increasing difference between the Group's income statement pension charge and the actual cash cost of pensions, including deficit payments); and other items that have resulted from events that are non-recurring in nature, even though related income/expense can be recognised in subsequent periods. These items currently include the cost of Employee Free Shares, and impairment and legacy costs (for example, movements in the industrial diseases provision).
Non-operating specific items
These are recurring or non-recurring items of income or expense of a particular size and/or nature which do not form part of the Group's trading activity and in Management's opinion require separate identification. These items include profit on disposal of property, plant and equipment and business and the IAS 19 non-cash pension interest credit/charge.
Adjusted operating profit before transformation costs
This is operating profit excluding the 'pension charge to cash difference' operating specific item and before transformation costs.
Adjusted operating profit margin before transformation costs
This is operating profit excluding the 'pension charge to cash difference' operating specific item and before transformation costs, expressed as a percentage of revenue.
Adjusted operating profit after transformation costs
This is operating profit excluding the 'pension charge to cash difference' operating specific item and after transformation costs.
Adjusted operating profit margin after transformation costs
This is operating profit excluding the 'pension charge to cash difference' operating specific item and after transformation costs, expressed as a percentage of revenue.
Adjusted earnings per share
Basic earnings per share, excluding operating and non-operating specific items.
Free cash flow
Free cash flow is based on statutory (reported) net cash flow before financing activities, adjusted to include finance costs paid and exclude net cash generated from the purchase/sale of financial asset investments.
Net debt
Net debt is calculated by netting the value of financial liabilities (excluding derivatives) against cash and other liquid assets.
Underlying change
Management focuses on movements in volume, revenue, costs, profits and margins on an 'underlying' basis. Underlying movements take into account differences in working days in UKPIL and movements in foreign exchange in GLS. In addition, adjustments are made for non-recurring or distorting items, which by their nature may be unpredictable. These adjustments are made to the prior year 'adjusted' figures to derive 'underlying change'. A schedule of the adjustments to the 2013-14 'adjusted' results to derive 'underlying change' is shown in the Financial review.
Key sources of estimation uncertainty and critical accounting judgements
The preparation of consolidated financial statements necessarily requires Management to make estimates and assumptions that can have a significant impact on the financial statements. These estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed below.
Pensions
The value of defined benefit pension plan liabilities and assessment of pension plan costs are determined by long-term actuarial assumptions. These assumptions include discount rates (which are based on the long-term yield of high-quality corporate bonds), inflation rates and mortality rates. Differences arising from actual experience or future changes in assumptions will be reflected in the Group's consolidated statement of comprehensive income. The Group exercises its judgement in determining the assumptions to be adopted, after discussion with a qualified actuary. Details of the key actuarial assumptions used and of the sensitivity of these assumptions are included within note 8.
Deferred revenue
The Group recognises advance customer payments on its balance sheet, relating to stamps and meter credits purchased by customers but not yet used at the balance sheet date. The valuation of this deferred revenue is based on a number of different estimation and sampling methods using external specialist resource as appropriate.
The majority of this balance is made up of stamps sold to the general public. For sales to the general public, estimates of stamp volumes held are made on the basis of monthly surveys performed by an independent third party. In order to avoid over-estimation of the typical number of stamps held, Management apply a cap to the results to exclude what are considered to be abnormal stamp holdings from the estimate.
The level at which holdings are capped is judgemental and is currently set at 99 of each stamp type per household. The impact of applying alternative capping values on the year end public stamp deferred revenue balance is shown in the table below.
Capped Uncapped
=====================
As reported
At 29 March 2015 30 99 300
=================================== === =========== === ========
Public stamp holdings value (GBPm) 165 198 223 227
=================================== === =========== === ========
The value of stamps and meter credits held by retail and business customers are more directly estimated through the analysis of sales volumes and monthly meter sampling. Further adjustments are also made for each type of sale to take into account volume purchasing of stamps when price changes are announced.
The results of the above procedures are reviewed by Management in order to make a judgement of the carrying amount of the accrual. The total accrual is held within current trade and other payables but a portion (which cannot be measured) will relate to stamps and meter credits used one year or more after the balance sheet date.
Deferred tax
Assessment of the deferred tax asset requires an estimation of future profitability. Such estimation is inherently uncertain in a market subject to various competitive pressures. Should estimates of future profitability change in future years, the amount of deferred tax recognised will also change accordingly. Prior to recording deferred tax assets for tax losses, relevant tax law is considered to determine the availability of the losses to offset against the future taxable profits. The carrying values of the deferred tax assets and liabilities are included within note 6.
Provisions
Due to the nature of provisions, a significant part of their determination is based upon estimates and/or judgements concerning the future. Of the provisions in place the transformation and industrial diseases claims provisions are considered to be the areas where the application of judgement has the most significant impact.
Transformation provisions, including for redundancy and property costs, are derived based upon the most recent business plan for direct expenditure where plans are sufficiently detailed and appropriate communication to those affected has been undertaken. These plans include the expected number of employees impacted, expected rate of compensation per employee, expected period of properties remaining vacant and their rental costs as well as expected dilapidation costs.
The industrial diseases claims provision arose as a result of a Court of Appeals judgement in 2010 and relates to individuals who were employed in the General Post Office Telecommunications division prior to October 1981. The provision requires estimates to be made of the likely volume and cost of future claims and is based on the best information available as at the year end, which incorporates independent expert actuarial advice.
2. Segment information
Business unit Main statutory entities
=================================== =====================================
UK Parcels, International & Letters Royal Mail Group Limited
(UKPIL) Royal Mail Estates Limited
UK operations Royal Mail Investments Limited
=================================== =====================================
General Logistics Systems (GLS) GLS Germany GmbH & Co. OHG
Other European operations GLS Italy S.p.A.
GLS France S.A.S.
=================================== =====================================
Other Romec Limited (51 per cent owned
UK operations subsidiary) - facilities management
NDC 2000 Limited (51 per cent owned
subsidiary) - design services
Quadrant Catering Ltd (51 per cent
owned associate) - catering services
=================================== =====================================
The Group is structured on a geographic business unit basis and these business units report into the Chief Executive's Committee and the Royal Mail plc Board. Each of these units has discrete revenue, costs, profit, cash flows, assets and people. Therefore, full and complete financial information is prepared and reviewed on a regular basis and compared with both historical and budget/forecast information as part of the performance management process.
The key measure of segment performance is operating profit before transformation costs (used internally for the corporate balanced scorecard). A reconciliation of the Group's earnings before interest and tax (EBIT) by segment is also disclosed.
The majority of inter-segment revenue relates to the provision of facilities management and catering services to UKPIL. Trading between UKPIL and GLS is not material.
Transfer prices between the segments are set on a basis of charges reached through commercial negotiation with the respective business units that form each of the segments.
Reported 52 weeks 2015
Other
European
UK operations operations
======================= ===========
UKPIL Other Total GLS Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
======================================== ======== ====== ===== =========== =====
External revenue 7,757 14 7,771 1,557 9,328
Inter-segment revenue - 152 152 - 152
======================================== ======== ====== ===== =========== =====
Total segment revenue 7,757 166 7,923 1,557 9,480
======================================== ======== ====== ===== =========== =====
Operating profit before transformation
costs 486(1) 10 496 115 611
Transformation costs (145) - (145) - (145)
======================================== ======== ====== ===== =========== =====
Operating profit after transformation
costs 341 10 351 115 466
Operating specific items:
Employee Free Shares charge (169) - (169) - (169)
Impairment and legacy costs (33) - (33) (46) (79)
======================================== ======== ====== ===== =========== =====
Operating profit 139 10 149 69 218
Non-operating specific items:
Profit on disposal of property, plant
and equipment 133 - 133 - 133
======================================== ======== ====== ===== =========== =====
Earnings before interest and tax 272 10 282 69 351
not reported
Net finance costs at this level (27) 1 (26)
================
Net pension interest (non-operating
specific item) 75 - 75
======================================== ======== ====== ===== =========== =====
Profit before tax 330 70 400
Tax - specific items 66 - 66
- other (102) (36) (138)
========================================
Profit for the period from continuing
operations 294 34 328
======================================== ======== ====== ===== =========== =====
(1) Includes GBP129 million pension charge to cash difference - operating specific item (note 4)
Reported 52 weeks 2014
Other
European
UK operations operations
======================== ===========
UKPIL Other Total GLS Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
============================================== ======= ======= ====== =========== ======
External revenue 7,787 18 7,805 1,552 9,357
Inter-segment revenue - 176 176 - 176
============================================== ======= ======= ====== =========== ======
Total segment revenue 7,787 194 7,981 1,552 9,533
============================================== ======= ======= ====== =========== ======
Operating profit before transformation
costs 550(2) 13 563 106 669
Transformation costs (241) - (241) - (241)
============================================== ======= ======= ====== =========== ======
Operating profit after transformation
costs 309 13 322 106 428
Operating specific items:
Royal Mail Pension Plan amendment 1,350 - 1,350 - 1,350
Transaction-related costs (24) - (24) (4) (28)
Employee Free Shares charge (94) - (94) - (94)
Impairment and legacy costs (15) - (15) - (15)
============================================== ======= ======= ====== =========== ======
Operating profit 1,526 13 1,539 102 1,641
Non-operating specific items:
Profit on disposal of property, plant
and equipment 19 - 19 - 19
Profit on disposal of associate undertaking 2 - 2 - 2
============================================== ======= ======= ====== =========== ======
Earnings before interest and tax 1,547 13 1,560 102 1,662
not reported
Net finance costs at this level (70) 3 (67)
================
Net pension interest (non-operating
specific item) 69 - 69
============================================== ======= ======= ====== =========== ======
Profit before tax 1,559 105 1,664
Tax - specific items (276) - (276)
- other (69) (41) (110)
============================================== ====== =========== ======
Profit for the period from continuing
operations 1,214 64 1,278
============================================== ======= ======= ====== =========== ======
(2) Includes GBP58 million pension charge to cash difference - operating specific item (note 4)
The following amounts are included within operating profit before transformation costs:
Reported 52 weeks 2015
Other
European
UK operations operations
=================== ===========
UKPIL Other Total GLS Total
GBPm GBPm GBPm GBPm GBPm
========================================== ===== ===== ===== =========== =====
Depreciation (211) (1) (212) (30) (242)
Amortisation of intangible assets (mainly
software) (31) - (31) (6) (37)
Share of post-tax profit from associate - 1 1 - 1
========================================== ===== ===== ===== =========== =====
Reported 52 weeks 2014
Other
European
UK operations operations
==================== ===========
UKPIL Other Total GLS Total
GBPm GBPm GBPm GBPm GBPm
========================================== ====== ===== ===== =========== =====
Depreciation (212) - (212) (29) (241)
Amortisation of intangible assets (mainly
software) (29) - (29) (4) (33)
Share of post-tax profit from associate - 3 3 - 3
========================================== ====== ===== ===== =========== =====
3. Transformation costs
Reported Reported
52 weeks 52 week
2015 2014
GBPm GBPm
================================================================ =========
Voluntary redundancy - ongoing (87) (14)
Voluntary redundancy - management reorganisation programme 6 (102)
Project costs (including GBP2 million management reorganisation
programme costs in 2014) (55) (108)
Business transformation payments (9) (17)
================================================================ ========= ========
Total transformation costs (145) (241)
================================================================ ========= ========
Business transformation payments represent payments linked to the achievement of key milestones in transforming the network, as part of the Business Transformation Agreement 2010.
4. Specific items
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
====================================================== ========= =========
Operating specific items:
Pension charge to cash difference (129) (58)
Royal Mail Pension Plan amendment - 1,350
Transaction-related costs - (28)
Employee Free Shares charge (169) (94)
Impairment and legacy costs (79) (15)
====================================================== ========= =========
Potential industrial diseases claims (19) 7
Historical employment costs 15 (15)
Impairment (24) -
French Competition Authority investigation costs (46) -
Other (5) (7)
====================================================== ========= =========
Total operating specific items (377) 1,155
====================================================== ========= =========
Non-operating specific items:
Profit on disposal of property, plant and equipment 133 19
Profit on disposal of associate undertaking - 2
Net pension interest 75 69
====================================================== ========= =========
Total non-operating specific items 208 90
====================================================== ========= =========
Total specific items before tax (169) 1,245
====================================================== ========= =========
The impairment of GBP24 million relates to certain IT assets which did not fully meet the requirements of the business.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========================================== ========= =========
Tax effect of above items(1) 55 (288)
Tax specific items 11 12
========================================== ========= =========
Adjustments in respect of prior periods 9 -
Impact of change in tax rate(2) 2 12
========================================== ========= =========
Total 66 (276)
========================================== ========= =========
(1) No tax charge has been recognised on property disposals included in specific items, as no tax liability would be expected to crystallise on the grounds that, were the assets (into which the gains have been rolled) to be sold at their residual values, no capital gain would arise
(2) A tax credit was recognised for the remeasurement of certain deferred tax balances as a result of the change in UK statutory corporation tax rates
The tax credit on specific items of GBP66 million (2013-14 GBP276 million charge) reflects the tax effect of specific items, including the tax impact of property transactions and certain tax-only adjustments such as the impact of changes in tax law and amounts over or under provided in previous years in respect of specific items.
5. Net finance costs and net debt
Reported Reported
52 weeks 52 weeks
2015 2014
Net finance costs GBPm GBPm
======================================================== ========= =========
Unwinding of discount relating to industrial diseases
claims provision (2) (3)
Interest payable on financial liabilities (28) (68)
======================================================== ========= =========
HM Government facilities:
Loans and borrowings - (47)
Unused facility fees - (2)
Other facility fees - (3)
Syndicated bank loan facility:
Loans and borrowings (7) (3)
Unused facility fees (2) (1)
Arrangement fees(1) (4) (2)
EUR500 million bond - 2.375% Senior Fixed Rate Notes
due July 2024 (6) -
Finance leases (7) (10)
Losses realised on interest rate swap contracts(2) (2) -
======================================================== ========= =========
Finance costs (30) (71)
======================================================== ========= =========
Interest receivable on financial assets 4 4
======================================================== ========= =========
Finance income 4 4
======================================================== ========= =========
Net finance costs (26) (67)
======================================================== ========= =========
(1) Arrangement fees include GBP2 million (2013-14 GBPnil million) written-off upon repayment of GBP350 million of the term loans following the bond issue
(2) The interest rate swap contracts were closed out early upon repayment of the remaining term loan on 9 March 2015
Net debt
Reported Reported
at 29 at 30
March March
2015 2014
Balance sheet category GBPm GBPm
======================================= ======================== ======== ========
Obligations under finance leases Current liabilities (93) (87)
Interest-bearing loans and borrowings Non-current liabilities (366) (600)
Obligations under finance leases Non-current liabilities (179) (255)
======================================= ======================== ======== ========
(638) (942)
Cash and cash equivalents 287 366
================================================================= ======== ========
Cash at bank and in hand Current assets 127 37
Client cash(3) Current assets 20 14
Cash equivalent investments(4) Current assets 140 315
======================================= ======================== ======== ========
Financial assets - short term deposits
(bank and local authority deposits) Current assets 56 1
Pension escrow investments (RMSEPP) Non-current assets 20 20
======================================= ======================== ======== ========
Total net debt (275) (555)
================================================================= ======== ========
(3) Client cash is cash collected from consignees by GLS on behalf of its posting customers
(4) Cash equivalent investments include short-term bank and local authority deposits, money market fund investments and other financial assets
Net debt decreased by GBP280 million during the year ended 29 March 2015 and by GBP351 million during the year ended 30 March 2014 as shown below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
============================================================== ========= =========
Net debt brought forward (555) (906)
Free cash flow 453 398
Dividends paid to equity holders of the parent Company (200) -
Dividend paid to non-controlling interests (1) -
Finance costs paid on refinancing of loan facilities - (45)
Decrease/(increase) in finance lease obligations (non-cash) 8 (1)
Foreign currency exchange impact on cash and cash equivalents (7) (1)
Foreign currency exchange rate impact on EUR500 million
bond 27 -
============================================================== ========= =========
Net debt carried forward at 29 March 2015 and 30 March
2014 (275) (555)
============================================================== ========= =========
Below is a summary of loans and borrowings at the year end, the respective average interest rates, and facilities available.
Average
Average maturity Average
interest Basis of date maturity
rate interest of date
Further of loan rate chargeable loan of
Loans committed Total drawn at 29 March drawn loan
and facility facility down 2015 down facility
borrowingsGBPm GBPm GBPm % % Year Year
=========================== ===============
Syndicated bank loan LIBOR plus
facilities - 1,050 1,050 n/a 0.55% n/a 2020
EUR500 million bond -
2.375% Fixed at
Senior Fixed Rate Notes 366 - 366 2.5 2.5% 2024 2024
=========================== =============== ========== ========= ========= ================ ========= =========
Total 366 1,050 1,416 2.5 2024 2021
=========================== =============== ========== ========= ========= ================ ========= =========
The bond, issued in July 2014, is shown net of issue discount and fees and at a closing spot rate of GBP0.737/EUR. The effective interest rate on the bond (2.5 per cent) consists of the interest coupon of 2.375 per cent plus the unwinding of the discount and fees on issuing the bond (0.08 per cent). The GBP300 million Term Loan B and GBP50 million of Term Loan A were repaid on 15 August 2014 through proceeds raised from the bond issue. The bond is designated as a hedge of the net investment in GLS, which has the Euro as its functional currency. During the year, a gain of GBP27 million on the retranslation of this borrowing was transferred to other comprehensive income which offsets the losses on translation of the net investment in GLS. There is no hedge ineffectiveness in the period ended 29 March 2015.
In March 2015, the Group took advantage of favourable market conditions to negotiate amendments to the syndicated bank loan facility to allow: conversion of the remaining term loan into a revolving credit facility; a reduction to the interest rates charged; and to extend the maturity date (to March 2020 with the option to extend for a further two years). This increased flexibility allowed the remaining GBP250 million of the existing syndicated bank loans to be repaid on 9 March 2015 whilst maintaining the same level of facilities.
The syndicated bank loan facility can be cancelled and any loans drawn under the facility can become repayable immediately on the occurrence of an event of default under the loan agreements. These events of default include non-payment, insolvency and breach of covenant relating to interest (excluding arrangement fees), adjusted net debt and EBITDA. It is not anticipated that the Group is at risk of breaching any of these obligations.
The covenants require the Group to maintain the (leverage) ratio of adjusted net debt to EBITDA below 3:1 and EBITDA to interest (excluding arrangement fees) above 3.5:1. Adjusted net debt consists of net debt plus Letters of Credit (contingent liabilities in respect of the UKPIL insurance programme, where the possibility of an outflow of economic benefits is considered remote(5) ) and adjusted for exchange rate movements during the year. The Group's leverage ratio at 29 March 2015 is 0.4:1 (2013-14 0.7:1). The Group's ratio of EBITDA to interest (excluding arrangement fees) at 29 March 2015 is 40.4:1 (2013-14 31.4:1). As a result, the Group is well within its covenant agreement at 29 March 2015.
The interest rate chargeable on the syndicated bank loan facility would increase if more than one third of the facility was drawn and would increase if the Group's leverage ratio exceeded 1:1. Under the loan agreement, the maximum interest rate chargeable would be LIBOR plus 1.45 per cent. The EUR500 million bond becomes repayable immediately on the occurrence of an event of default under the bond agreement. These events of default include non-payment and insolvency. The blended interest rate on gross debt for the period to 27 March 2016 is forecast to be approximately three per cent.
(5) The lease arrangement for automation equipment, which required Royal Mail to arrange for the provision of Letters of Credit (2013-14 GBP37 million), was terminated during the year and the Letters of Credit were cancelled, undrawn
6. Taxation
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
============================================================== ========= =========
Tax (charged)/credited in the income statement
Current income tax:
Current UK income tax charge (13) (1)
Foreign tax (32) (34)
============================================================== ========= =========
Current income tax charge (45) (35)
Amounts over/(under) provided in earlier years 6 (2)
============================================================== ========= =========
Total current income tax charge (39) (37)
Deferred income tax:
Effect of change in tax rates 2 12
Relating to origination and reversal of temporary differences (36) (368)
Amounts over provided in previous years 1 7
============================================================== ========= =========
Total deferred income tax charge (33) (349)
============================================================== ========= =========
Tax charge in the consolidated income statement (72) (386)
============================================================== ========= =========
Tax on non-GAAP, specific items:
Tax credit/(charge) relating to specific items 66 (276)
============================================================== ========= =========
Tax (charged)/credited to other comprehensive income
Deferred tax:
Actuarial (gains)/losses on defined benefit pension schemes (303) 117
Tax relief on pension payments 4 -
Net gains on revaluation of cash flow hedges 5 1
============================================================== ========= =========
Total (charge)/credit in the consolidated statement of
other comprehensive income (294) 118
============================================================== ========= =========
Reconciliation of the total tax charge
A reconciliation of the tax charge in the income statement and the UK rate of corporation tax applied to accounting profit for the 52 weeks ended 29 March 2015 and 52 weeks ended 30 March 2014 is shown below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========================================================== ========= =========
Profit before tax 400 1,664
========================================================== ========= =========
At UK standard rate of corporation tax of 21% (2013-14
23%) (84) (383)
Effect of higher taxes on overseas earnings (6) (2)
Tax over provided in prior years 7 5
Non-deductible expenses (19) (10)
Associate's profit after tax charge included in Group
pre-tax profit 1 1
Tax effect of property disposals 29 -
Net increase in tax charge resulting from non-recognition
of deferred tax assets and liabilities (2) (9)
Effect of change in tax rates 2 12
========================================================== ========= =========
Tax charge in the income statement (72) (386)
========================================================== ========= =========
Current tax
Substantially all of the current tax charge for the Group is in respect of GLS. UK taxable profits in 2014-15 are almost fully covered by a combination of brought forward losses, capital allowance claims and a further statutory deduction in respect of shares awarded to employees under the 2014 Employee Free Shares scheme. Accordingly, the current tax rate for the Group is 10 per cent.
Effective tax rate
The effective tax rate on reported profit is 18 per cent, comprising current tax due on reported profits and deferred tax in relation to temporary differences. This rate is below the UK statutory rate, principally because no tax charge has been recognised in relation to property disposals, as no tax liability would be expected to crystallise on the grounds that were the assets (into which gains have been rolled) to be sold at their residual values, no capital gain would arise.
GLS pays tax in a number of territories, with the majority of its profits in the period to 29 March 2015 earned in territories where the tax rate is above the UK statutory tax rate. Certain subsidiaries, notably GLS France, remain unable to recognise tax credits on losses made during the reporting period. These factors contribute to GLS having a higher effective tax rate for the period than the UK statutory rate.
Deferred tax
(Debited)/ (Debited)/
(Debited)/ credited (Debited)/ credited
credited to Reported credited to Reported
At 31 to other at 29 At 1 to other at 30
March income comprehensive March April income comprehensive March
Deferred tax by balance 2014 statement income 2015 2013 statement income 2014
sheet category GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Liabilities
Accelerated capital
allowances (1) - - (1) - (1) - (1)
Pensions temporary
differences (339) 13 (303) (629) (222) (234) 117 (339)
Employee share schemes (65) 17 - (48) - (65) - (65)
Goodwill qualifying
for tax allowances (28) (4) 3(1) (29) (23) (5) - (28)
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Deferred tax liabilities (433) 26 (300) (707) (245) (305) 117 (433)
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Assets
Deferred capital
allowances 169 (42) - 127 245 (76) - 169
Provisions and other 30 (5) - 25 37 (7) - 30
Losses available for
offset against future
taxable income 90 (12) 4 82 51 39 - 90
Hedging derivatives
temporary differences 2 - 5 7 1 - 1 2
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Deferred tax assets 291 (59) 9 241 334 (44) 1 291
======================== ====== ========== ============== ======== ====== ========== ============== ==========
Net deferred tax
(liability)/asset (142) (33) (291) (466) 89 (349) 118 (142)
======================== ====== ========== ============== ======== ====== ========== ============== ==========
(1) GBP3m (2013-14 GBPnil million) credited to the foreign currency translation reserve
Reported Reported
at 29 at 30
March March
2015 2014
Deferred tax - balance sheet presentation GBPm GBPm
========================================== ======== ========
Liabilities
GLS group (31) (30)
Net UK position (443) (121)
========================================== ======== ========
Deferred tax liabilities (474) (151)
========================================== ======== ========
Assets
GLS group 8 9
Net UK position - -
========================================== ======== ========
Deferred tax assets 8 9
========================================== ======== ========
Net deferred tax liability (466) (142)
========================================== ======== ========
The reported deferred tax position shows an increased overall liability in the reporting period to 29 March 2015.
This increase in the reported liability is primarily as a result of the deferred tax impact of the increase in UK pension assets as described in note 8, which has been reflected in other comprehensive income.
GLS has deferred tax assets and liabilities in various jurisdictions which cannot be offset against one another. The main balance relates to goodwill and intangibles liabilities in GLS Germany, for which the Group has already taken tax deductions.
At 29 March 2015, the Group had unrecognised deferred tax assets of GBP68 million (2013-14 GBP68 million) comprising GBP61 million (2013-14 GBP63 million) relating to tax losses of GBP227 million (2013-14 GBP238 million), mainly in GLS, that are available for offset against future profits if generated in the relevant companies and GBP7 million (2013-14 GBP5 million) in relation to GBP33 million (2013-14 GBP23 million) of UK capital losses carried forward. The Group has not recognised these deferred tax assets on the basis that it is not sufficiently certain of its capacity to utilise them in the future.
The Group also has temporary differences in respect of GBP295 million (2013-14 GBP307 million) of capital losses, the tax effect of which is GBP59 million (2013-14 GBP61 million) in respect of assets previously qualifying for industrial buildings allowances. Further temporary differences exist in relation to GBP308 million (2013-14 GBP214 million) of gains for which rollover relief has been claimed, the tax effect of which is GBP62 million (2013-14 GBP43 million). No tax liability would be expected to crystallise on the basis that, were the assets (into which the gains have been rolled) to be sold at their residual values, no capital gain would arise.
7. Free cash flow
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
=============================================================== ========= =========
EBITDA before transformation costs (see consolidated statement
of cash flows) 889 940
Pension charge to cash difference (operating specific item) 129 58
=============================================================== ========= =========
Total Group ongoing pension costs in the income statement 552 479
Total Group cash flows relating to ongoing pension costs:
RMPP defined benefit scheme employer contributions (note
8(d)) (369) (380)
Defined contribution scheme employer contributions (44) (31)
RMSEPP deficit correction payments (note 8(d)) (10) (10)
=============================================================== ========= =========
Trading working capital movements 1 (57)
Share-based awards (SAYE and LTIP) charge to cash difference 5 -
Dividend received from associate undertaking - 2
Net cash inflow from discontinued operations - 2
Total investment(1) (658) (617)
=============================================================== ========= =========
Growth capital expenditure (178) (201)
Replacement capital expenditure (252) (215)
Transformation operating expenditure (228) (201)
=============================================================== ========= =========
Income tax paid (37) (38)
Net finance costs paid (18) (33)
In-year trading cash inflow 311 257
Other working capital movements 11 140
Cash cost of operating specific items (8) (35)
Proceeds from disposal of property (excluding London property
portfolio), plant and equipment (non-operating specific
item) 39 33
Proceeds from disposal of associate undertaking (non-operating
specific item) - 3
London property portfolio disposals (non-operating specific
item) 100 -
=============================================================== ========= =========
Disposal proceeds 111 -
Related cash costs (11) -
=============================================================== ========= =========
Free cash inflow 453 398
=============================================================== ========= =========
(1) Total investment is represented by several different line items in the consolidated statement of cash flows
Working capital movements
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
======================================================= ========= =========
Other working capital movements:
March 2015 payroll paid after balance sheet date of 29
March 2015 46 -
Stamps used but purchased in previous periods/deferred
revenue (35) (10)
Unwinding of pension prepayment made in March 2012 - 150
======================================================= ========= =========
Total other working capital movements 11 140
Trading working capital movements 1 (57)
======================================================= ========= =========
Total working capital movements 12 83
======================================================= ========= =========
Free cash flow reconciliation
The following analysis provides a reconciliation of 'net cash inflow before financing activities' in the consolidated statement of cash flows and free cash inflow.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========================================================== ========= =========
Net cash inflow before financing activities 420 435
Net purchase of financial asset investments (non-current) 55 -
Other finance costs paid (22) (37)
========================================================== ========= =========
Free cash inflow 453 398
========================================================== ========= =========
8. Employee benefits - pensions
Summary pension information
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
============================================================== ========= =========
Ongoing pension costs:
UK defined benefit scheme (income statement rates(1) 23.6%,
20.3%) (508) (448)
UK defined contribution scheme (38) (25)
============================================================== ========= =========
Total UK ongoing pension costs (546) (473)
Total GLS defined contribution type scheme costs (6) (6)
============================================================== ========= =========
Total Group ongoing pension costs (552) (479)
============================================================== ========= =========
Difference between ongoing income statement charge and
cash flows (cash flow rates 17.1% for both years) (2) 139 68
============================================================== ========= =========
Total Group pension cash flows relating to ongoing pension
costs (413) (411)
============================================================== ========= =========
Reported Reported
at 29 at 30
March March
2015 2014
'000 '000
======================================== ======== ========
UK pension schemes - active membership:
UK defined benefit scheme 100 106
UK defined contribution scheme 39 36
======================================== ======== ========
Total 139 142
======================================== ======== ========
(1) This service cost is charged to the income statement. It represents the cost (as a percentage of pensionable payroll) of the increase over the year in the defined benefit obligation due to members earning one more year of pension benefits. It is calculated in accordance with IAS 19 and is based on market yields (high quality corporate bonds and inflation) at the beginning of the Company's reporting year
(2) This difference excludes the Royal Mail Senior Executives Pension Plan (RMSEPP) deficit correction payments of GBP10 million (2013-14 GBP10 million). The employer contribution cash flow rate forms part of the payroll expense and is paid into the Royal Mail Pension Plan (RMPP) (RM section). The contribution rate is set following each actuarial funding valuation, usually every three years. These actuarial valuations are required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail
UK Defined Contribution Scheme
The Group operates the Royal Mail Defined Contribution Plan, which was launched in April 2009 and is open to employees who joined the Company from 31 March 2008 following closure of the Royal Mail Pension Plan (RMPP) to new members.
Ongoing UK defined contribution scheme costs have increased from GBP25 million in 2013-14 to GBP38 million mainly due to an increase in the average employer's contribution rate from 3.8 per cent in 2013-14 to 5.4 per cent.
UK Defined Benefit Schemes
Royal Mail Group Limited had one of the largest defined benefit pension schemes in the UK (based on membership and assets), called the RMPP. On 1 April 2012 (one week into the 2012-13 reporting year) - after the granting of State Aid approval by the European Commission to HM Government on 21 March 2012 - almost all of the historic pension liabilities and pension assets of RMPP, built up until 31 March 2012, were transferred to a new HM Government pension scheme, the Royal Mail Statutory Pension Scheme (RMSPS).
On this date, RMPP was also sectionalised, with Royal Mail Group Limited and Post Office Limited each responsible for their own sections from 1 April 2012 onwards.
The transfer left the Royal Mail section (RM section) of the RMPP fully funded on an actuarial basis. This means that, using long-term actuarial assumptions agreed at that date, it was predicted the Company would have to make no further cash deficit correction payments relating to the historic liabilities. All further references in this note to the RMPP, relate to its RM section.
Royal Mail Pension Plan (RMPP)
The RMPP is funded by the payment of contributions to separate trustee administered funds. RMPP includes sections A, B and C, each with different terms and conditions:
Section A is for members (or beneficiaries of members) who joined before 1 December 1971;
Section B is for members (or beneficiaries of members) who joined on or after 1 December 1971 and before 1 April 1987 or for members of Section A who chose to receive Section B benefits; and
Section C is for members (or beneficiaries of members) who joined on or after 1 April 1987 and before 1 April 2008. Benefits provided are based on career salary blocks for years' service, revalued annually.
Following conclusion of the March 2012 actuarial valuation, the regular future service contribution rate for RMPP, expressed as a percentage of pensionable pay, remained at 17.1 per cent. As the valuation showed the Plan to be in surplus no deficit correction payments are currently being made by the Company. The Group expects to contribute around GBP369 million to the RMPP in respect of normal cash service costs in 2015-16.
Royal Mail Senior Executives Pension Plan (RMSEPP)
The Group also contributes to a smaller defined benefit scheme for executives, RMSEPP - which closed in December 2012 to future accrual. The Company therefore makes no regular future service contributions. As agreed in the March 2012 actuarial valuation the Company makes deficit correction payments of GBP10 million per annum until at least the date on which the 2018 valuation is completed (no later than 30 September 2018). Deficit correction payments in 2014-15 were GBP10 million (2013-14 GBP10 million).
A liability of GBP2 million (2013-14 GBP1 million) has been recognised for future payment of pension benefits to a past Director.
Pensions Reform
In June 2013, the Company began a consultation with RMPP members on a proposal to ensure the RMPP could remain open to future accrual, subject to certain conditions, at least until the conclusion of the next periodic review in March 2018. Subsequently, on 26 September 2013, the Company agreed with the RMPP Trustee to implement a Pensions Reform with effect from 1 April 2014.
The agreed changes due to the Pensions Reform were considered to be a 'Plan amendment' which met the IAS 19 definition of a past service cost, and as such GBP1,350 million was recognised in the income statement of the Group for the comparative year ended 30 March 2014.
Accounting and actuarial surplus position (RMPP and RMSEPP)
Accounting (IAS Actuarial/cash
19) funding
============================================= ================== ==================
Reported Reported Reported Reported
at 29 at 30 at 31 at 31
March March March March
2015 2014 2015 2014
GBPm GBPm GBPm GBPm
============================================= ======== ======== ======== ========
Fair value of schemes' assets (8(b) below) 6,619 3,833 6,462 3,873
Present value of schemes' liabilities (3,425) (2,097) (4,669) (2,451)
============================================= ======== ======== ======== ========
Surplus in schemes (pre IFRIC 14 adjustment) 3,194 1,736 1,793 1,422
IFRIC 14 adjustment (15) (13) n/a n/a
============================================= ======== ======== ======== ========
Surplus in schemes 3,179 1,723 1,793 1,422
============================================= ======== ======== ======== ========
There is no element of the present value of the schemes' liabilities above that arises from schemes that are wholly unfunded. The actuarial liabilities calculated for the Annual Report and Financial Statements are required within shorter timescales, which can lead to differences in approximations and assumptions compared to the scheme actuary's funding updates.
The surplus in RMSEPP is assumed to be available as a refund as per IFRIC 14 and, as such, is shown net of taxation withheld.
The surplus in RMPP is assumed to be recoverable as a reduction to future employer contributions. Therefore, no IFRIC 14 adjustment is required. The Directors do not believe that the current excess of pension scheme assets over the liabilities on an accounting basis will result in an excess of pension assets on a funding basis. However, the Directors are required to account for the pension scheme based on their legal right to benefit from a surplus, using long-term actuarial assumptions current at the reporting date, as required by IFRS.
The actuarial/cash funding surplus of GBP1,793 million at 31 March 2015 (31 March 2014 surplus of GBP1,422 million) allows the RMPP to remain open for the benefit of the members at least until March 2018, subject to certain conditions (as part of the Pensions Reform agreement), without requiring either the Company or individuals to make unaffordable increases to their cash contributions.
The funding liabilities have increased more than the accounting liabilities since they are calculated by reference to gilt yields which have fallen to a greater extent than corporate bond yields on which the accounting liabilities are calculated. As a result, the funding surplus has increased less than the accounting surplus.
The following disclosures relate to the major assumptions, sensitivities, surplus and gains/losses in the RMPP and RMSEPP defined benefit schemes.
a) Major long-term assumptions used for accounting (IAS 19) purposes - RMPP and RMSEPP
The major assumptions used to calculate the accounting position of the pension schemes were as follows:
Reported Reported
at 29 March at 30 March
2015 2014
======================================================== ============ ============
Retail Price Index (RPI) 3.1% 3.4%
Consumer Price Index (CPI) 2.1% 2.4%
Discount rate
- nominal 3.5% 4.5%
- real (nominal less RPI)(3) 0.4% 1.1%
Rate of increase in pensionable salaries(4) RPI-0.1% RPI-0.1%
Rate of increase for deferred pensions CPI CPI
Rate of pension increases - RMPP Sections A/B CPI CPI
Rate of pension increases - RMPP Section C(4) RPI-0.1% RPI-0.1%
Rate of pension increases - RMSEPP members transferred
from Section A or B of RMPP CPI CPI
Rate of pension increases - RMSEPP all other members(4) RPI-0.1% RPI-0.1%
Life expectancy from age 60 - for a current 40/60 year
old male RMPP member 29/27 years 29/27 years
Life expectancy from age 60 - for a current 40/60 year
old female RMPP member 32/30 years 32/30 years
======================================================== ============ ============
(3) The real discount rate used reflects the long average duration of the RMPP scheme of around 30 years
(4) The rate of increase in salaries, and the rate of pension increase for Section C members (who joined RMPP on or after April 1987) and RMSEPP 'all other members', is capped at five per cent which results in the average long-term pension increase assumption being 10 basis points lower than the RPI long-term assumption
Mortality
The mortality assumptions for RMPP are based on the latest Self Administered Pension Scheme (SAPS) S1 mortality tables with appropriate scaling factors (106 per cent for male pensioners and 101 per cent for female pensioners). Future improvements are based on the CMI 2012 core projections with a long-term trend of 1.25 per cent per annum.
Sensitivity analysis for RMPP liabilities
The RMPP liabilities are sensitive to changes in key assumptions. The potential impact of the largest sensitivities on the RMPP liabilities is as follows:
Potential
Increase
in
liabilities
Key assumption change GBPm
============================================================= ============
Additional one year of life expectancy 95
Increase in inflation rate (both RPI and CPI simultaneously)
of 0.1% p.a. 90
Decrease in discount rate of 0.1% p.a. 90
Increase in CPI assumption (assuming RPI remains constant)
of 0.1% p.a. 25
============================================================= ============
This sensitivity analysis has been determined based on a method that assesses the impact on the defined benefit obligation, resulting from reasonable changes in key assumptions occurring at the end of the reporting year. Changes opposite to those in the table (e.g. an increase in discount rate) would have the opposite effect on liabilities.
The average duration of the RMPP obligation is 30 years (2013-14 28 years).
b) Schemes' assets - RMPP and RMSEPP
Reported at 29 March Reported at 30
2015 March 2014
======================== =========================
Quoted Unquoted Total Quoted Unquoted Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ======= ======== ===== ======= ======== ======
Equities
UK 22 165 187 28 82 110
Overseas 411 - 411 321 - 321
Bonds
Fixed interest - UK 60 8 68 101 8 109
- Overseas 525 - 525 371 - 371
Index linked - UK 195 - 195 156 - 156
- Overseas - - - - - -
Pooled investments
Managed funds 576 - 576 303 - 303
Unit Trusts 4,166 - 4,166 1,864 - 1,864
Property (UK) 23 295 318 20 230 250
Cash and cash equivalents 175 - 175 345 - 345
Other 25 - 25 5 - 5
Derivatives (27) - (27) (1) - (1)
========================== ======= ======== ===== ======= ======== ======
Total schemes' assets 6,151 468 6,619 3,513 320 3,833
========================== ======= ======== ===== ======= ======== ======
There were no open equity derivatives within this portfolio at 29 March 2015 (at 30 March 2014 GBPnil million). Included within the pension assets are GBP3.7 billion (2013-14 GBP2.0 billion) of HM Government Bonds. The schemes' assets do not include property occupied by the Group, the Group's own shares, or assets used by the Group.
Risk exposure and investment strategy
The investment strategy of the RMPP Trustee aims to safeguard the assets of the Plan and to provide, together with contributions, the financial resource from which benefits are paid. Investment is inevitably exposed to risks. The investment risks inherent in the investment markets are partially mitigated by pursuing a widely diversified approach across asset classes and investment managers. The RMPP uses derivatives (such as swaps and futures) to reduce risks whilst maintaining expected investment returns. The RMPP Trustee recognises that there is a natural conflict between improving the potential for positive return and limiting the potential for poor return. The RMPP Trustee has specified objectives for the investment policy that balance these requirements.
The largest risks faced by the Plan are movements in interest rates and inflation rates. To reduce the risk of movements in these rates driving the Plan into a funding deficit, and the Company not being able to maintain its March 2018 commitment, the Trustee aims to hedge in advance the funding liabilities which will build up by March 2018. The liabilities projected to accrue to March 2017 have already been hedged - predominantly through investment in gilts and derivatives (interest rate and inflation rate swaps) held in Unit Trust pooled investments providing economic exposure to gilts. The impact of the Plan's advance hedging of projected funding liabilities is to increase volatility in the pension surplus due to the return on the liability hedging assets not being matched by an increase in the accrued liabilities. As the accrued liabilities get closer to the projected liabilities that have been hedged, this volatility will reduce. The increase in the liability hedged assets is predominantly reflected in the Unit Trust values above which have increased from GBP1,864 million at 30 March 2014 to GBP4,166 million at 29 March 2015.
The notional value covered by the interest rate swaps (full exposure to the relevant asset class incurred by entering into a derivative contract) held in a specific managed portfolio for this purpose at 29 March 2015 is GBP2.5 billion (at 30 March 2014 GBP2.3 billion) and the notional value covered by the inflation rate swaps at 29 March 2015 is GBP1.8 billion (at 30 March 2014 GBP1.5 billion).
The spread of investments continues to balance security and growth in order to pay the RMPP benefits when they become due.
c) Movement in schemes' assets, liabilities and net position - RMPP and RMSEPP
Changes in the value of the defined benefit pension liabilities, fair value of the schemes' assets and the net defined benefit asset/(liability) are analysed as follows:
Defined benefit Defined benefit Net defined
asset liability benefit asset/(liability)
========================================== ================== ================== ============================
Reported Reported Reported Reported Reported Reported
2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm
========================================== ======== ======== ======== ======== ============= =============
Retirement benefit surplus (pre IFRIC
14 adjustment) at 31 March 2014 and
1 April 2013 3,833 3,343 (2,097) (2,513) 1,736 830
========================================== ======== ======== ======== ======== ============= =============
Amounts included in the income statement:
Ongoing UK defined benefit pension
scheme costs - - (508) (448) (508) (448)
Royal Mail Pension Plan amendment - - - 1,350 - 1,350
Pension interest income/(cost)(5) 183 172 (108) (103) 75 69
========================================== ======== ======== ======== ======== ============= =============
Total included in profit before tax 183 172 (616) 799 (433) 971
========================================== ======== ======== ======== ======== ============= =============
Amounts included in other comprehensive
income - remeasurement gains/(losses):
Actuarial gain/(loss) arising from:
Demographic assumptions - - - 4 - 4
Financial assumptions - - (590) (256) (590) (256)
Experience adjustment - - 5 2 5 2
Return on schemes' assets (excluding
interest income) 2,097 (203) - - 2,097 (203)
========================================== ======== ======== ======== ======== ============= =============
Total actuarial gains/(losses) on defined
benefit schemes 2,097 (203) (585) (250) 1,512 (453)
========================================== ======== ======== ======== ======== ============= =============
Other:
Employer contributions 409 407 - - 409 407
Employee contributions 129 136 (129) (136) - -
Benefits paid (33) (25) 33 25 - -
Curtailment costs - - (31) (20) (31) (20)
Movement in pension-related accruals 1 3 - (2) 1 1
========================================== ======== ======== ======== ======== ============= =============
Total other movements 506 521 (127) (133) 379 388
========================================== ======== ======== ======== ======== ============= =============
Retirement benefit surplus (pre IFRIC
14 adjustment) at 29 March 2015 and
30 March 2014 6,619 3,833 (3,425) (2,097) 3,194 1,736
========================================== ======== ======== ======== ======== ============= =============
(5) Pension interest income results from applying the schemes' discount rate at 30 March 2014 to the schemes' assets at that date. Similarly, the pension interest cost results from applying the schemes' discount rate as at 30 March 2014 to the schemes' liabilities at that date
The return on assets has been driven by the increase in market value of gilts, which the RMPP Trustee holds as part of its liability hedging strategy. This strategy has been agreed with the Company to support the commitment Royal Mail has made to its employees, which is that, subject to certain conditions, RMPP will remain open until at least March 2018.
In addition to the above items which affect the defined benefit asset, additional curtailment costs of GBP10 million (2013-14 GBP34 million) were recognised in the income statement on a consistent basis with the associated redundancy costs. Estimates of both are included in any redundancy provision raised.
d) Pension cash flows
The analysis below shows how the defined benefit scheme employer contributions in note 8(c) reconcile with the defined benefit scheme pension cash flows in note 7.
Reported Reported
at 29 at 30
March March
2015 2014
GBPm GBPm
============================================================= ======== ========
Ongoing defined benefit (RMPP) scheme employer contributions 369 380
Deficit correction payments (RMSEPP) 10 10
Pension (RMPP) top-up payments relating to voluntary
redundancy - within transformation operating expenditure 30 17
Employer defined benefit scheme contributions (note 8(c)) 409 407
============================================================= ======== ========
9. Earnings per share
52 weeks 2015 52 weeks 2014
=================== ==================
Reported Adjusted Reported Adjusted
=================================================== ======== ========= ======== ========
Profit from continuing operations attributable
to equity holders of the parent (GBPm) 325 428 1,275 306
Weighted average number of shares issued (million) 1,000 1,000 1,000 1,000
Basic earnings per share (pence) 32.5 42.8 127.5 30.6
Diluted earnings per share (pence) 32.5 42.8 127.5 30.6
=================================================== ======== ========= ======== ========
The diluted earnings per share for the year ended 29 March 2015 is based on a weighted average number of shares of 1,001,485,583 to take account of the issue of potential ordinary shares resulting from the Long-Term Incentive Plan (LTIP) for certain senior management and the Save As You Earn (SAYE) scheme that was launched during the reporting year (note 10).
The basic and diluted earnings per share for the comparative year ended 30 March 2014 assumed that one billion shares in issue at the date of the Company's listing on the London Stock Exchange (15 October 2013) existed for the whole of that reporting year.
10. Share-based payment
Employee Free Shares
Ordinary shares representing in total 10 per cent of the value of the Company were granted free of charge to eligible employees on 15 October 2013, the date of the Initial Public Offering. These Free Shares are held on behalf of employees in an HM Revenue and Customs (HMRC)-approved Share Incentive Plan (SIP) administered by Equiniti Share Plan Trustees Limited (Equiniti).
613 shares were awarded to each eligible full-time employee as their 2013 SIP allocation. The Company allocated a further 116 shares (729 in total - see below) to eligible full-time employees on 9 April 2014 as a 2014 SIP allocation, subject to them remaining employees of Royal Mail Group Limited.
The 729 total shares awarded to eligible full-time employees comprises the 725 initial, expected allocation of shares and an additional four shares resulting from the reallocation of shares forfeited by certain employees who left the Group during the 2013-14 reporting period.
Part-time eligible employees have been allocated a pro-rata number of shares. All allocated shares will be equity-settled.
The fair value of the award of Free Shares is GBP510 million (including GBP20 million National Insurance) which is being charged to the income statement on a straight line basis, adjusted for 'good leavers' and forfeitures, over the period of vesting (three years for the 2013 SIP and four years for the 2014 SIP, in each case from the award date).
A charge to the income statement of GBP169 million (including GBP6 million National Insurance) has been made for the year ended 29 March 2015 for both SIP allocations, as they were granted as one award.
The Free Shares are held in a Trust funded by Royal Mail and may only be distributed to, or for the benefit of, eligible employees. The Trust is under the control of the Company and is operating for its benefit. At 29 March 2015 the Trust has been included in these consolidated financial statements.
A reconciliation of the ordinary shares held in the SIP at 29 March 2015 is shown below.
Number
of
shares
================================================================= ===========
Initial shares award on 15 October 2013 84,415,327
Shares transferred out of SIP - 'good leavers' (809,247)
Remaining shares to be allocated 15,744,673
================================================================= ===========
Total shares remaining in SIP at 30 March 2014 99,350,753
================================================================= ===========
Shares transferred out of SIP during the reporting period ('good
leavers') (4,494,836)
================================================================= ===========
Total shares remaining in SIP at 29 March 2015 94,855,917
================================================================= ===========
Of the total shares remaining in the scheme 92,983,863 are allocated to current employees. The remaining 1,872,054 shares are unallocated, of which 1,763,804 arose as a result of forfeitures, with a further 108,250 not subject to allocation under either SIP.
Award of shares under the Long-Term Incentive Plan (LTIP)
The 2013 LTIP is a three-year scheme that vests in March 2016. This scheme is being treated as a cash-settled scheme on the assumption that the award will result in cash payment. The fair value of the award reflects the share price at the reporting year end date of 29 March 2015 at which point the value was GBP5 million (2013-14 GBP5 million).
A further LTIP award was granted to senior management on 31 March 2014 (2014 LTIP). This award is equity-settled with the fair value of the shares awarded being set at the grant date market value of 450.4 pence. A total of 3.5 million shares have the potential to vest under the 2014 LTIP.
The total income statement charge arising from both LTIP schemes is summarised in the table below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
========== ========= =========
2013 LTIP - 5
2014 LTIP 5 -
========== ========= =========
Total 5 5
========== ========= =========
The LTIP shares are not part of the SIP explained above. The 2013 LTIP and 2014 LTIP schemes will vest three years after the grant date and settlement will take into account a range of performance conditions determined by the Remuneration Committee.
Save As You Earn Share (SAYE) share option scheme
On 24 July 2014 a SAYE share option scheme was introduced for eligible employees. Under the terms of the scheme the Board permits the grant of options in respect of ordinary shares in the Company to those employees who enter into an HMRC-approved SAYE savings contract. These contracts are for a term of three years with contributions from employees of an amount between GBP5 and GBP59 each month. The options purchased may be exercised during the six month period following the end of the contract at a subscription price of not less than 80 per cent of the average of the mid-market quotations of an Ordinary Share over the three dealing days immediately preceding the offer date.
A charge to the Group income statement of GBP1 million has been made for the year ended 29 March 2015 in relation to the SAYE scheme.
The table below shows the movements in share options during the reporting period.
Number
of
options
=================================================
Balance at the beginning of the reporting period -
Options granted 14,956,040
Options exercised (65)
Options forfeited (174,435)
================================================= ==========
Balance at the end of the reporting period 14,781,540
================================================= ==========
For SAYE options exercised during the period, the weighted average share price at the date of exercise was 429 pence. The weighted average exercise price for each of the above categories of share options is 360 pence.
As a result of the scheme rules for good leavers, 43,850 (2013-14 nil) share options were exercisable at 29 March 2015 at a weighted average exercise price of 360 pence.
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs shown below. Expected volatility has been estimated by reference to historical trends of share price movements of similarly regulated FTSE 100 companies. The fair value of the options granted is expensed over the service period of three years on the assumption that 11 per cent of options will lapse over the service period as employees leave the Group.
3-year plan
==================================
1 October
Grant Date 2014
Share price at grant date (pence) 450
Exercise price (pence) 360
Option life (years) 3.35
Risk-free rate (%) 1.4
Expected volatility (%) 17.3
Expected dividend yield (%) 4.6
Estimated share price growth (%) 9.2
Fair value of option (pence) 65
================================== ===========
11. Dividends
Reported Reported Reported Reported
52 weeks 52 weeks 52 weeks 52 weeks
2015 2014 2015 2014
============================= ========== ========== ========= =========
Pence Pence
Dividends on ordinary shares per share per share GBPm GBPm
============================= ========== ========== ========= =========
Paid final dividend 13.3 - 133 -
Paid interim dividend 6.7 - 67 -
============================= ========== ========== ========= =========
Total dividend 20.0 - 200 -
============================= ========== ========== ========= =========
In addition to the above dividends paid the Directors are proposing a final dividend for the year ending 29 March 2015 of 14.3 pence per share with a total value of GBP143 million. This dividend will be paid to shareholders on 31 July 2015 subject to approval at the AGM to be held on 23 July 2015.
12. Assets and liabilities held for sale
The balance sheet values of the assets and liabilities held for sale are shown below. The disposal group in this note, as defined in IFRS 5 'Non-current assets held for sale and discontinued operations', relates to GLS Germany's subsidiary, DPD Systemlogistik GmbH & Co. KG (DPD SL).
Reported
Reported at 30
at 29 March March
2015 2014
GBPm GBPm
Assets of disposal group (DPD SL) held for sale 17 -
Other non-current (property) assets held for sale 15 3
===================================================== ============ ========
Total non-current assets held for sale 32 3
===================================================== ============ ========
Total liabilities associated with non-current assets
(DPD SL) held for sale (10) -
===================================================== ============ ========
Disposal group (DPD SL) - discontinued operations
On 6 March 2015 an agreement was reached for the sale of GLS Germany's subsidiary, DPD SL, with the sale subsequently completed on 31 March 2015. At the reporting date of 29 March 2015, this entity has been presented as discontinued operations in the consolidated income statement and its assets and liabilities reclassified as held for sale in the consolidated balance sheet, in line with IFRS 5.
The table below provides a summary of the main categories of assets and liabilities that were reclassified as held for sale at the reporting date. No impairment was required in reclassifying these assets and liabilities as held for sale.
Reported
Reported at 30
at 29 March March
2015 2014
GBPm GBPm
==================================================== ============ ========
Property, plant and equipment 7 -
Trade and other receivables 9 -
Cash and cash equivalents 1 -
==================================================== ============ ========
Assets of disposal group (DPD SL) held for sale 17 -
==================================================== ============ ========
Trade and other payables (10) -
Liabilities associated with disposal group (DPD SL)
held for sale (10) -
==================================================== ============ ========
In addition to the above assets and liabilities, an amount of GBP2 million within the foreign currency translation reserve also relates to DPD SL.
Details of DPD SL's trading results for the reporting period are shown below.
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
======================================================== ========= =========
Revenue 96 99
Operating costs (96) (97)
======================================================== ========= =========
People costs (16) (15)
Distribution and conveyance costs (72) (73)
Infrastructure costs (4) (4)
Other operating costs (4) (5)
======================================================== ========= =========
Profit before tax from discontinued operations - 2
Tax charge - -
Profit from discontinued operations - 2
======================================================== ========= =========
Basic earnings per share from discontinued operations 0.0p 0.2p
======================================================== ========= =========
Diluted earnings per share from discontinued operations 0.0p 0.2p
======================================================== ========= =========
The net cash flows relating to DPD SL can be summarised as follows:
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
=========================== ========= =========
Operating cash flow 1 3
Investing cash flow (1) (1)
Financing cash flow - -
Impact of foreign exchange - -
=========================== ========= =========
Net cash flow impact - 2
=========================== ========= =========
Property assets held for sale
Other non-current assets held for sale of GBP15 million at 29 March 2015 (at 30 March 2014 GBP3 million) relate to land and buildings which are being actively marketed with a view to a sale within 12 months. An assessment of the fair value of these properties was made at the time of their reclassification to 'held for sale' and no adjustment to the carrying amount of these properties was necessary.
13. Related party information
Related party transactions
During the reporting year the Group entered into transactions with related parties:
Reported Reported
52 weeks 52 weeks
2015 2014
GBPm GBPm
===================================================== ========= =========
Sales/recharges to:
- RMPP 5 6
===================================================== ========= =========
Purchases/recharges from:
- Associate undertaking (Quadrant Catering Limited) 14 22
Amounts owed to:
- Associate undertaking (Quadrant Catering Limited) 1 2
===================================================== ========= =========
In view of HM Government's retained stake in Royal Mail plc, the Group has taken advantage of the exemption conferred by IAS 24 Related Party Disclosures, not to disclose transactions between the Group and HM Government-related entities, including Post Office Limited, and with HM Government itself.
UKPIL provides collection and delivery services to a significant number of HM Government-related entities. An arrangement is also in place whereby Post Office Limited charges the Group for the sale of Royal Mail products e.g. stamps and philatelic items, through its network of Post Office branches.
The sales to and purchases from related parties are made at normal market prices. Balances outstanding at the year end are unsecured, interest free and settlement is made by cash.
Key management compensation
Reported Reported
52 weeks 52 weeks
2015 2014
GBP000 GBP000
============================================ ========= =========
Short-term employee benefits (10,202) (9,587)
Post-employment benefits - -
Other long-term benefits (2,846) (5,072)
============================================ ========= =========
Total compensation earned by key management (13,048) (14,659)
============================================ ========= =========
In addition to the inclusion of the Executive and Non-Executive Directors of Royal Mail plc, from the beginning of the 2014-15 reporting year, the 'key management personnel' population has been extended to include all other members of the Chief Executive's Committee and the remainder of the Persons Discharging Managerial Responsibilities.
In view of the above, the 2013-14 comparative numbers have been restated to include the remuneration received by this extended population.
The ultimate parent and principal subsidiaries
Royal Mail plc is the ultimate parent company of the Group. The consolidated financial statements include the financial results of Royal Mail Group Limited and the other principal subsidiaries listed below:
% equity % equity
interest interest
Company Principal activities Country of incorporation 2015 2014
=========================== ======================== ========================= ========= =========
General Logistics Systems Parcel services holding
B.V. company Netherlands 100 100
Royal Mail Estates Limited Property holdings United Kingdom 100 100
Royal Mail Investments
Limited Holding company United Kingdom 100 100
Romec Limited Facilities management United Kingdom 51 51
=========================== ======================== ========================= ========= =========
Associate
% %
ownership ownership
Company Principal activities Country of incorporation 2015 2014
========================== ===================== ========================= ========== ==========
Quadrant Catering Limited Catering services United Kingdom 51 51
========================== ===================== ========================= ========== ==========
The majority of Board membership and voting power in Quadrant Catering Limited is held by the other investor company, and it is therefore not a subsidiary of the Group. The investment in Quadrant Catering Limited is held by Royal Mail Group Limited.
The Company has taken advantage of the exemption under section 410 of the Companies Act 2006 allowing a schedule of interests in all undertakings to be filed with the Annual Return.
14. Events after the reporting period
On 31 March 2015, after the financial year end, GLS Germany disposed of its wholly-owned subsidiary, DPD Systemlogistik GmbH & Co. KG (DPD SL) to DPD GeoPost (Deutschland) GmbH. The disposal resulted in a post-tax profit of around EUR40 million (GBP29 million) which will be reflected as a specific item in the Group's 2015-16 financial statements.
Shareholder information
Financial calendar
Trading update - 21 July 2015
Annual General Meeting - 23 July 2015
Dividend dates
Ex-dividend date - 2 July 2015
Record date - 3 July 2015
Payment date - 31 July 2015
Shareholder information online
The Company's registrars, Equiniti, are able to notify shareholders by email of the availability of an electronic version of shareholder information.
Whenever new shareholder information becomes available, such as the Company's half year and full year results, Equiniti will notify you by email and you will be able to access, read and print documents at your own convenience.
To take advantage of this service for future communications, please go to www.shareview.co.uk and select 'Shareholder Services', where full details of the shareholder portfolio service are provided. When registering for this service, you will need to have your 11-digit shareholder reference number to hand, which is shown on your dividend tax voucher, share certificate or form of proxy.
Should you change your mind at a later date, you may amend your request to receive electronic communication by entering your shareview portfolio online and amending your preferred method of communication from 'email' to 'post'.
Shareholder fraud
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. While high profits are promised, if you buy or sell shares in this way you will probably lose your money.
5,000 people contact the Financial Conduct Authority (FCA) about share fraud each year, with victims losing an average of GBP20,000. If you are approached by fraudsters please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
Advisers
Corporate Brokers
Barclays Bank plc, The North Colonnade, London, E14 4BB
Bank of America Merrill Lynch, 2 King Edward Street, London, EC1A 1HQ
Independent Auditor*
Ernst & Young LLP (EY), 1 More London Place, London, SE1 2AF
Trustee of The Royal Mail Share Incentive Plan
Equiniti Share Plan Trustees Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
www.royalmailemployeeshares.co.uk
Tel: 0800 012 1213
Information for investors
Information for investors is provided on the internet as part of the Group's website which can be found at: www.royalmailgroup.com/investor-centre.
Investor enquiries
Enquiries can be directed via our website or by contacting:
Registrars
Equiniti
Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
www.shareview.co.uk
Tel: 0871 384 2656 (from outside the UK: +44 (0)121 415 7086)
Fax: 0871 384 2100 (from outside the UK: +44 (0)1903 698403)
Calls to this number cost 8 pence per minute from a BT landline, other providers' costs may vary. Lines are open 8.30am to 5.30pm UK time, Monday to Friday.
Registered office
Royal Mail plc
100 Victoria Embankment
London EC4Y 0HQ
Registered in England and Wales
Company number 08680755
Corporate websites
Information made available on the Group's websites does not, and is not intended to, form part of these Results.
* EY will hold office until the conclusion of the 2015 AGM. At the 2015 AGM a resolution is tabled to appoint KPMG as Auditors of the Company.
Forward-looking statements
Disclaimer
This document contains certain forward-looking statements concerning the Group's business, financial condition, results of operations and certain of the Group's plans, objectives, assumptions, projections, expectations or beliefs with respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'will', 'should', 'expects', 'believes', 'intends', 'plans', 'potential', 'targets', 'goal' or 'estimates'.
Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group's actual financial condition, performance and results to differ materially from the plans, goals, objectives and expectations set out in the forward-looking statements included in this document. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.
By their nature, forward-looking statements relate to events and depend on circumstances that will occur in the future and are inherently unpredictable. Such forward-looking statements should, therefore, be considered in light of various important factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, among other things: changes in the economies and markets in which the Group operates; changes in the regulatory regime within which the Group operates; changes in interest and exchange rates; the impact of competitive products and pricing; the occurrence of major operational problems; the loss of major customers; undertakings and guarantees relating to pension funds; contingent liabilities; the impact of legal or other proceedings against, or which otherwise affect, the Group; and risks associated with the Group's overseas operations.
All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurance can be given that the forward-looking statements in this document will be realised; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Subject to compliance with applicable law and regulation, the Company does not intend to update the forward-looking statements in this document to reflect events or circumstances after the date of this document, and does not undertake any obligation to do so.
Royal Mail, the cruciform, Parcelforce Worldwide and the Parcelforce Worldwide logo are trade marks of Royal Mail Group Limited. The GLS arrow logo is a trade mark of General Logistics Systems Germany GmbH & Co. OHG. (c) Royal Mail Group Limited 2005. All rights reserved.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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